Period  3Q14/9M14

Actual vs. Expectations MEDIA’s 9M14 net profit of RM105m (-30% YoY) came in below expectation and accounted for 58.7% and 57.4% of our, and consensus’, full-year estimates, respectively.

 The key negative deviations on our end were mainly due to the: (i) lower-than-expected net TV revenue on slower adspend and higher discount, (ii) higher-than-expected direct costs from its TV division, as well as high overheads cost.

Dividends  As expected, a second interim single tier DPS of 3.0 sen was declared (ex-date: 10th of Dec.), bringing its 9M14 totals DPS to 6.0 sen (9M13: 6.0 sen). For the full financial year, we understand that management has an intention to maintain its 14.0 sen DPS, subject to the shareholders' approval.

Key Result Highlights  YoY, 9M14 turnover slipped 12% to RM1.1b, no thanks to the lower revenue contribution from its key segments, namely TV (-10%, mainly due to slower adspend); Print (-17%, mainly due to both lower advertising and

newspaper sales); and the Outdoor division (-9%, as a result of the slower take up by advertisers). The weak adex sentiment in 9M14 was mainly caused by the MH370 and MH17 incidents, which led to advertisers adopting a ‘wait-and-see'’ attitude and holding back on their adspend. The group’s EBIT, however, plunged 30% to RM153m with margin narrowed to 13.7% (vs. 17.2% in 9M13) as a result of the persistently high fixed costs.

 QoQ, the group’s turnover dropped 3% due to the continuous weak market sentiment led by the MH17 incident. TV segment revenue climbed marginally (1%) in 3Q14 while print revenue was lowered by 8% as a result of lower advertising and circulation revenue. Its net profit, however, improved by 18% to RM42m, thanks to the better cost management which enhanced the group’s EBIT margin to 16.5% (vs. 13.2% in the preceding quarter).

Outlook  The adex sentiment is expected to remain cloudy, in view of the recent petrol price hike and on-going subsidy rationalisation plans, which could further dampen the already weak consumer spending.

 Moving forward, MEDIA is aiming to continue to focus on: (i) growing its advertising revenue, (ii) implementing group-wide cost saving initiatives, and (iii) expanding its multi-platform content production for market beyond its TV network.

Change to Forecasts Post-results, we have lowered our FY14E-FY15E NP forecasts by 22% and 26%, respectively, after: (i) lowering advertising revenue in both TV and print division, (ii) lower EBIT margin on higher direct and overhead costs.

Rating Maintain MARKET RPERFORM

While the group’s outlook appears gloomy, its high dividend yield could provide some cushions to its share price.

Valuation  Our TP has been reduced to RM1.80 (from RM2.33 previously) based on a lower targeted FY15 PER of 13.1x (from 13.7x previously) and representing a 6-year average forward PER.

Risks to Our Call Improvement in adex sentiment.

Source: Kenanga