Period  2Q14/1H14

Actual vs. Expectations Below expectations. The group reported a 2Q14 net profit (NP) of RM35.8m (+33% QoQ, -40% YoY), bringing its 1H14 NP to RM62.8m (-28% YoY) which only made up c.31% and c.28% of our full-year estimates, and street consensus, respectively. Note that typically the 1H NP made up 38%-45% of the full- year NP for the past 3 years.

 The key negative deviations were due to the: (i) lower than expected net TV revenue on slower adspend and higher discount, (ii) lower-thanexpected circulation revenue in Print segment, and (ii) higher-than-expected direct costs.

Dividends  As expected, an interim single tier dividend of 3.0 sen was declared. We are expecting a total net DPS of 13.0 sen to be declared in FY14 (DPR of 76%), which gives a net yield of 5.4%.

Key Result Highlights YoY, 1H14 net revenue came in lower at RM740.9m (-11%), dragged down by the group's lion share revenue contributors namely TV segment (-8%, mainly due to slower adspend) and Print segment (-16%, mainly due to both lower advertising and newspaper sales). Of noteworthy, the third largest revenue contributor of the group, the Outdoor segment (-11%) also posted lower revenue due to slower take up by advertisers. Overall, adspend had slowed down as the feel good factors from the major adex friendly events namely FIFA World Cup and Visit Malaysia were negated by the MH370 incident as well as the ongoing subsidy rationalisation programme. As a result of lower revenue coupled with the unchanged fixed direct costs, 1H14 NP dropped by 28% to RM62.8m.

 QoQ, the group registered a seasonally stronger 2Q14 at the net revenue level (+12%) with higher revenues seen across all the segments. As a result of higher economies of scales, the group NP rebounded by 33% underpinned by TV and Print segments.

Outlook  While the on-going Visit Malaysia Year events could continue to lend strength to the adex sentiment, we are keeping our conservative view unchanged (with an annual 6.8% YoY growth in total adex) in light of the subsidy rationalisation plans as well as the recent tragedies which could dampen the adex sentiment.

Change to Forecasts Post results, we have lowered our FY14-FY15 NP forecasts by -12% and -7%, respectively, to mainly account for: (i) lower circulation revenue in light of consumers shift in media consumption preferences and (ii) lower EBITDA margin on higher overhead costs.

Rating Maintain MARKET PERFORM

Valuation  Our TP has been reduced to RM2.53 (from RM2.75 previously) based on an unchanged targeted FY15 PER of 15.0x (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