Highlights

• Media Prima Berhad entered into a conditional sale and purchase agreement (SPA) with Rev Asia Berhad and Youth Asia Sdn Bhd to acquire 15.8m ordinary shares in Rev Asia Holdings Sdn Bhd (RAHSB), representing 100% of the issued and paid up capital of RAHSB for a purchase consideration of RM105m. Financial Impact
• Media Prima intends to fund this via internally generated funds. This should not be a concern considering its cash pile of RM374.9m as end of FY16 which translates into a net cash position of RM74.8m.

Comments

• REV Asia Holdings Group is one of Malaysia?s leading digital media group, owning and operating top authority brands with an extensive distribution platform that is able to reach a total reach of approximately 5 million people each month.
• Content marketing (CM) involves the creation and sharing of online material. As technology has changed the way people consume content, it is easier to target the millennials through CM given greater time spent on the Internet and social media.
• We deem the purchase price of RM105m to be fair , assuming yoy earnings growth of 27% in FY17; FY17 P/E would decrease to 18.2x (from 26.0x), which is lower than average global industrial P/E.
• However, we are not overly excited considering that RAHSB business model is still very much focused on desktop users and has yet to have a proven strategy to penetrate mobile segment. Mobile segment is crucial with growing eyeballs as internet users are spending more time on mobile compared to PC.
• RAHSB recorded a revenue and net profit of RM23.5m and RM4.2m in FY16, representing a growth of 32% and 27% as compared to FY15. Going forward we expect Rev Asia to contribute an additional 2-4% to top line and 6-8% to bottom line of Media Prima.
• Media Prima Digital has an audience reach of up to 5.8m and RAHSB has up to 4.6m. Post-acquisition Media Prima?s reach of 9m would crown Media Prima the largest Malaysian digital media company.
• We expect newsprint and TV adex to continue weaken due to the shift in consumer behaviour towards digital plat forms. Hence we are positive on Media Prima?s continued initiative moving into the new media segment.

Risks

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

Forecasts

• Unchanged

Rating

SELL (↔)

• Although we like MPR for its integrated media business and its monopoly position in Free-To-Air segment, we remain cautious as we expect prolonged soft consumer and business sentiment, weak adex environment and continued structural shift in media platform to challenge its profitability.

Valuation

• Maintain SELL, with an unchanged TP of RM0.88 based on P/E multiple of 10x FY17 EPS. (4-year average P/E multiple).

Source: Hong Leong Investment Bank Research - 09 May 2017