Results

• Within expectations – Media Prima charted revenue of RM359.6m for 1QFY16 (-17% qoq, -8% yoy). This translates to a core PATAMI of RM17.2m (1.55 sen/share), which made up 12% of both ours and consensus estimates.

Deviations

• Seasonality. We consider results to be within expectations as adex is usually skewered towards the end of the year. Historically, 1Q PATAMI accounts for 10%-17% of full year for the past 5 years.

Dividends

• None; usually declared in the subsequent quarters. Dividend policy of 60:80 is maintained.

Highlights

• 1Q16 revenue was dragged by lower contribution from print segment (from RM133.6m in 1Q15 to RM110.2m in 1Q16), which declined 19% qoq and 18% yoy. Decline in print segment was mainly on the back of declining circulation and advertising sales from its English print (NST).

• Operating expenses was well contained post MSS and streamlining of business operations where it improved 6% yoy and 11% qoq. We expect more cost savings in quarters to come which would cushion its earnings from the decline in revenue due to structural shift in the media platform.

• Launched on 1st of April 2016, Media Prima’s home shopping business, ‘CJ Wow Shop’ exceeded its first day sales target. Management is targeting revenue of RM100m – RM150m in FY17 and is expecting to breakeven in 2 years.

• Its 8tv channel has been revamped and will solely focus on showing and producing more local and regional Chinese content. Most of its urban English content would be shown on YouTube.

• With Tonton’s Subscription Video on Demand service (SVOD), we believe the group would be able to attract higher vernacular demand, with a target of circa 130k subscribers for SVOD. MPR’s SVOD is currently offering RM3/ per day, RM5/ week, RM10/month and RM96/ year to its 5.6m registered Tonton users.

• As for its migration to DTTB, management stated that it is still in negotiation with MyTV to decrease its transmission fee. Analogue switch off would be in June 2018.

Risks

• Weak Adex growth; High content and newsprint cost; Threat of new players; Depreciation of RM vs. US$; and
• Regulatory risk.

Forecasts

• Unchanged. Introduced our FY18 financial forecasts.

Rating

HOLD

• Although we like MPR for its integrated media business and its monopoly position in Free-To-Air Segment, we expect sluggish adex growth, considering the impact of GST on consumer spending, to limit profitability growth.

Valuation

• Maintain HOLD, with higher TP of RM1.30 as we roll forward our valuation to 10x FY17 EPS. (4-year average P/E multiple). The stock lacks rerating catalysts and will be affected by slowdown in adex growth and poor consumer sentiment. A bright spot for the group is its dividend yield of 7.4% - 7.9%.

Source: Hong Leong Investment Bank Research - 13 May 2016