Results

• Below expectations – Media Prima’s 1HFY16 revenue of RM769.7m (-6% yoy) was translated into PATAMI of RM45.2m (-28% yoy).

• While revenue came in close to expectations, PATAMI was below, accounting for 30% and 33% of HLIB and street full year forecasts, respectively.

Deviations

• Lower-than-expected earnings from Print and TV Segments.

Dividends

• Declared dividend of 2.0 sen/share. Dividend policy of 60- 80% is maintained.

Highlights

• 2QFY16 review… Coming from a seasonally weaker 1QFY16, revenue improved by 14% qoq. Although revenue from the print segment picked up by 9.5% qoq (from seasonally weaker 1Q), it declined by 17.6% yoy to RM120.7m in 2Q16. The print segment continued to be dragged down by the declining circulation and advertising sales from its English print (NST). The decline was cushioned by slight increase in revenue from the home shopping business, outdoor media digital media (from its new apps and Tonton subscription) and radio segment.

• 6MFY16 review… PATAMI contracted by 33% yoy to RM41.6m in 6M16, due to the shift to digital media which adversely affected traditional media platforms. EBITDA margin of the print segment contracted by 7ppts due to decline in advertising sales and print circulation while that of TV segment also declined 7ppts due to one-time implementation and start-up cost from home shopping.

• Media Prima’s 2Q16 operating expense took a hit due to the one-off cost from the home shopping business where it increased by 13% qoq. However, the group still registered a 1% improvement of its 6M16 operating expenses post MSS and streamlining of business operations. After the one-off cost, we expect more operating cost to normalize in subsequent quarters, reducing the drag to earnings caused by structural shift in the media platform.

• Its home shopping business, ‘CJ Wow Shop’ exceeded its 1Q sales target with revenue of RM18.6m. Management expects breakeven within 18 months to 2 years.

• Tonton’s Subscription of Video on Demand service (SVOD) saw an increase in registered users from 5.6m to 5.8m. We anticipate a soft 2H due to the structural shift in media platforms and the dreary outlook for the newsprint segment as well as softer adex outlook.

Risks

• Weak Adex growth; High content and newsprint cost; Threat of new players; Depreciation of RM; and regulatory risk.

Forecasts

• We cut our FY16-18 forecasts by 18.1%, 5.9% and 4.4% respectively to factor in lower EBITDA margin.

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 lower TP of RM1.28 (previously RM1.30) based on P/E multiple of 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.

Source: Hong Leong Investment Bank Research - 12 Aug 2016