News/ Comments

• Media Prima had undertaken a key restructuring exercise to optimise its print manufacturing operations. The restructuring involves closure of its manufacturing plants in Ajil and Senai. (The Edge Weekly)

• Print circulation has been challenging with yoy growth of 2% in 1H15 and -15% in 1H14. Thus, we believe the closure will allow the group to run its print segment more efficiently.

• One-off restructuring cost… In the immediate term, the closure of the two plants will result in one-off restructuring costs. However we believe the effect will be confined to FY16 and limited to its print segment. Recall in FY14 the group faced a non-recurring Multiple Separation Scheme (MSS) expense of RM79.8m which subsequently resulted in a 7-ppts yoy improvement in its print segment’s EBITDA margin in FY15.

• According to Media Prima’s FY15 Annual Report, it has two leasehold lands in Senai, Johor totalling 357,949 sq ft of land amounting to NBV of RM21.5m and a 610,404 sq ft leasehold land in Ajil, Terengganu with NBV of RM24.1m. The sale of these lands is estimated to unlock 3.3% of its share price value. We opine that it is very likely that the group will sell the land as the group will no longer need as much printing plant as we are of the view that print circulation will continue to face pressure from print’s digital substitutes.

• We expect the possible sale of the land to take some time to come to fruition but it will allow the group to inject more capital in further developing its digital segments.

• As of 1H16, Media Prima has a net cash of circa RM106.9m (9.60 sen per share).

Risks

• (1) Weak Adex growth;

• (2) High content and newsprint cost;

• (3) Threat of new players;

• (4) Depreciation of RM; and

• (5) 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 and weak print circulation 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 - 21 Nov 2016