Period  1Q14

Actual vs. Expectations Within expectations. The group reported 1Q14 net profit (NP) of RM27.0m (-57% QoQ, 0% YoY), which made up c.13% and c.12% of our forecast and the consensus full-year estimates, respectively.

 We deem the results to be within expectations as 1Q typically is the weakest quarter amid the seasonal weakness. Note that historically 1Q only made up c.10-c.17% of the full-year NP in the past three years.

Dividends  No dividend was declared as expected

Key Result Highlights YoY, 1Q14 net revenue came in lower at RM350.2m (-4%) as the growth in TV segment (+7%) was erased by the weak Print segment (-15%) which was due to lower advertising and newspaper sales. Of noteworthy, the revenue of the Radio segment (+10%) outperformed the overall industry revenue growth of -2% on the back of higher sponsorship by advertisers as well as adspend from Non Traditional Advertisers. Despite the weaker revenue growth, the group’s NP remained relatively unchanged at RM27.0m thanks to the lower finance costs.

 QoQ, the group registered a seasonally weaker 1Q14 at the net revenue level (-22%) with lower revenues seen across all the segments. The group’s NP plunged by 57% dragged down by a lower EBIT margin of 11.3% (-8.3ppts) on the back of lower revenue and an unchanged fixed direct cost. Typically, 1Q14 is a seasonally weak quarter where advertisers tend to conserve their A&P budget in the first two months of the year to renegotiate new advert rates.

Outlook  While we reckon that the two major adex friendly events namely FIFA World Cup and Visit Malaysia Year could lend strength to the consumer sentiment, we are still keeping our conservative view unchanged (with an annual 6.8% YoY growth in adex) in light of the subsidy rationalisation plans that could dampen the adex sentiment.

 Note that the group has now raised its dividend payout ratio (DPR) policy from a wide 25%-75% range to a narrower 60%-80% range. We are keeping our FY14 DPR assumption of 78% for now in view of the bleak adex outlook.

Change to Forecasts Our FY14-FY15 NP forecasts have been marginally increased by 2% for house keeping purposes post 1Q14 results update.

Rating Upgrade to MARKET PERFORM as its share price has declined by 10% since our UNDERPERFORM rating. At the current market price, the stock offers a total return of 9%.

Valuation  Our TP has been marginally raised to RM2.68 (from RM2.66 previously) based on a targeted FY14 PER of 16.0x (being the +0.5SD above the 6-year average forward PER).

Risks to Our Call The CY14 gross adex growth coming in above our expectation of RM14.5b (+6.8% YoY) or RM8.9b (+2.1%) after stripping-off the Pay-TV segment contribution.

Source: Kenanga