Period

2Q15/1H15

Actual vs. Expectations

MEDIA’s 1H15 core PATAMI of RM62.8m (flat YoY) came in within expectation at 42.7%/40.7% of our/street’s, full-year estimates.

Historically, the 1H results normally made up c.38%-41% of the full-year earnings, based on the past three years. Nevertheless, in view of the current challenging macro outlook, we believe the group’s operational environment will continue to remain challenging in 2H.

Dividends

As expected, an interim single tier dividend of 3.0 sen was declared. For the full financial year, we expect MEDIA to declare a total net DPS of 11.8 sen (DPR of 80%), which gives a net yield of 9.4%. Key Result

Highlights

YoY, 1H15 net revenue came in lower at RM694m (-6%), no thanks to the weaker performance on all its key segments as a result of the lower advertising revenue. Despite the single-digit drop in revenue, the group’s PATAMI managed to stay flat in 1H15 on the back of production cost savings & efficiencies.

QoQ, revenue improved by 11% with PATAMI soaring more than 100% to RM43.9m due to seasonally low base effect and business sentiment pick-up in June for Ramadhan and Raya festivities.

Outlook

The adex sentiment is expected to remain weak, in view of the current rising cost of living post the GST implementation. On top of that, the weakening of Ringgit coupled with the current market uncertainties are expected to continue sapping advertisers’ appetite over the near-term.

Moving forward, we understand that MEDIA is aiming to continue to focus on: (i) growing its non-traditional revenue (i.e. home and online shopping) while maintaining its leading viewership positions through high quality contents and new programmes introduction, (ii) optimizing manpower and increase staff productivity, (iii) expanding its multi-platform content production for market beyond its TV network.

Meanwhile, the current weak Ringgit is expected to pose a challenge to the group’s newsprint and content cost. To mitigate the impact, MEDIA has started to order its newsprint solely from MNI (which uses RM as a denominator currency) and shift its newsprint to 42gsm (from 45 gsm previously) to improve the production yield. On content cost front, management intends to set a fix allocation amount and scarify the quantity when acquiring overseas contents.

Change to Forecasts

We have raised our FY15/FY16E NPs marginally by 0.7%/0.2% after fine-tuning

Rating

Maintain MARKET PERFORM despite the potential total return is more than 10% from here. The group’s earnings risk remains high post the official rollout of DTT service as the proposed transmission costs structure will pose a hefty financial toll to the group, should the ongoing re-negotiation failed.

Valuation

Our TP stays at RM1.22 based on unchanged targeted FY16E PER of 8.9x, representing a -1 Std Dev below the 6-year mean.

Risks to Our Call

Downside risk – failure to renegotiate the transmission cost under the DTT service.

Source: Kenanga Research - 14 Aug 2015