News

• Media Prima announced that Big Tree-Seni Jaya Consortium, comprising the company’s wholly -owned subsidiary, Big Tree Outdoor Sdn Bhd (BTO) and Seni Jaya Sdn Bhd, had received a Letter of Acceptance (LOA) from Mass Rapid Transit Corporation Sdn Bhd, for the proposal for MRT’s Advertising Concession. BTO is leading the Consortium based on a percentage ratio of 60:40.

• The LOA to the Consortium is for Package B (Exterior Station i.e. Piers to Viaduct and Ancillary Buildings) on an exclusive basis. The concession includes advertising opportunities along the MRT train line which covers a distance of circa 41km covering key areas such as Sg Buloh, Kota Damansara, Bandar Utama, TTDI, Damansara Heights, Cheras and Kajang.

Comments

• In Jun-16, MRT Corp closed the tender submissions for the proposal for the SBK Line. Phase One (Sg Buloh to Semantan) of the SBK Line is expected to begin operations by end 2016 while Phase Two (Semantan to Kajang) is expected to run by Jul-17.

• BTO’s CEO guided for circa RM300m revenue throughout the concession of 10 years. A joint venture agreement will be signed by both parties however the date has yet to be disclosed. BTO will be leading and managing the JV with a 60% share.

• OOH Track Record… Media Prima’s out-of-home (OOH) advertising segment has come a long way since the group acquired BTO in 2006. In 1H16, OOH makes up circa 12% and 21% of the group’s total revenue and total EBITDA, respectively. EBITDA margin stands at 37%.

• Focusing on growth… Malaysia’s OOH adex grew 17% in 2015 while FTA TV, newspaper and magazine experienced double digit contraction. This concession could potentially increase OOH’s portion of total EBITDA by around 2%-pts, gradually decreasing its dependence on segments with less growth potential.

• Securing the above concession, on top of the secured advertising concession for LRT’s new line extension back in June this year, is commendable as this shows the group’s efforts to focus its resources on segments with potential for growth. However, we are neutral on the concession as the expected contribution is minimal for now, accounting for less than 3% of FY17 PATAMI.

Risks

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

Forecasts

• Unchanged

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 weaker consumer spending, to limit profitability growth.

Valuation

Maintain HOLD, with unchanged TP of RM1.28 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 - 30 Sep 2016