We are maintaining our NEUTRAL view on the media sector.Post 4QCY11 results, media companies have started to change their bearish viewsto being more optimistic given the improved outlook for both consumers andadvertisers. Despite the first two months gross adex  seeing a contraction of -1.7% YoY, we arekeeping our full year +11.1% YoY growth forecast unchanged for now. There is nochange in our earnings forecasts for media companies under our coverage. We aremaintaining Media Chinese International ('MCIL') target price of RM1.30 with anOUTPERFORM recommendation while keeping MARKET PERFORM ratings on both Star Publications('Star')  and Media Prima ('MPR') withunchanged target prices of RM3.40 and RM2.72 respectively, 

CY11 resultssnapshot.  Most of the media companyresults under our coverage came in above ours and the street expectations. Themain culprits were due to better costs efficiency and higher-than-expectedsales as a result of seasonal factors. In view of their encouraging results,especially for the latest quarter, media companies have started changed theirbearish views to being more optimistic given the  improved outlook for both consumers and advertisers.Dividend-wise, Star declared a total 18.0 sen in FY11, which translated into a dividendpayout ratio of 71%, and in line with its dividend payout policy of 70%-80%.MPR on the other hand declared a total full year dividend of 16.0 sen. Thistranslated to a dividend payout ratio of 91.8% and exceeded the company policy,which sets its payout policy at between 25%-75% of PATAMI. No dividend wasdeclared by MCIL as expected given that the company tends to declare it on abiannual basis. 

Adex gathers momentumin FY11 but soften in the first two months of 2012. The country's mediagross adex gained momentum and recorded a rise of 11.9% YoY to RM10.8b (including  Pay-TV segment)  in  CY11, thanks to the TV and newspapers' segments, which jumped by 13.3% and11.9% to RM5.5b and RM4.4b respectively. For the YTD adex (until February),  it has  softened  by -1.7%  YoY  to RM1.41b  as  a result  of  lower free-to-air  TV  and newspapers adex, which fell by 10.6% and2.0% to RM365m and RM596m respectively. The slowdown in our view was mainly dueto a shorter pre-Chinese New Year advertising period and advertisers conservingtheir A&P budget as they renegotiate ad rates with media owners.  All the media companies are currentlyexpecting the country's overall gross adex to grow at a high single digit inCY12 as compared to our low double digit growth expectation. We expect grossadex at RM11.9b, or +11.1% YoY growth, based on 2.3x GDP multiplier (average ofthe past two GE years).                                     

The Malay printmarket adex share exceeded that of the Chinese in FY11, in line with thegrowing readership in the Malay segment according to Nielsen MediaResearch.  The research outfit indicatedthat the Malay print market adex share has increased to 31% (FY10: 26%),overtaking the 29% share (FY10: 30%) of the Chinese segment. English languageon the other hand continued to dominate the print market share with a 40%share, although this is lower than its 44% share in the preceding quarter(figure 1 & 2). 

Newsprint costhovering at an expected trading range. Newsprint price is currently trading at around USD650-670/MT, in linewith the industry players' expectation, and is expected to hover at the currentlevel during 1HCY12 as a result of deteriorating newspaper pulp price.Nevertheless, industry players are expecting the newsprint price to trendhigher in 2H due to potential higher demand from North America. MCIL iscurrently holding a 6 to 8-month newsprint inventory with an average cost ofUSD700/MT. New Straits Times and Star, on the other hand, are currently holding8-month and 12-month newsprint inventories respectively (the highest among theindustry), with an average cost of USD720/MT and slightly below USD700/MTrespectively. We have imputed an average of USD700/MT, USD720/MT and USD700/MTnewsprint cost assumptions for MCIL (for FY13), MPR and Star respectively.        

Source: Kenanga