News

MEDIA announced that its wholly-owned subsidiary, Synchrosound Studio Sdn Bhd, has entered into a conditional share purchase agreement with Mohamed Fazhly Bin Johari, Hamyzar Bin Toha and Lau Chuan Chiat to acquire 100% (or 500,000 ordinary shares) of the entire issued and paid-up share capital of Copyright Laureate Sdn Bhd (CLSB), for a total cash consideration of RM20.0m.

CLSB is a private limited company involved primarily in the provision of radio services, where it is currently engaged in operating two radio broadcasting stations (Ultra FM and Pi Mai FM).

The proposed acquisition will allow MEDIA to expand its radio portfolio to 5 stations, which consists of Hot.fm, Fly.fm and One.fm.

Rationales for the acquisition are to allow the group to expand its existing media assets portfolio as well as to leverage on its position as the leading integrated media group.

Management believes the additional radio stations could provide potential synergistic benefits within the group as well as enjoy significant cost savings through consolidation of back office and operational costs.

Comments

We are NEUTRAL on the deal given that CLSB is still suffering losses and which may require another 1-3 years gestation period. Based on the latest company filing to SSM, CLSB has a total asset of RM2.5m with a negative reserve of RM2.4m as at the end FYEDecember 2014. It revenue stood at RM2.8m (-6.3% YoY) in FY14 with LPT widening to -RM1.5m (from - RM489k a year ago).

Funding is not an issue for MEDIA given the group’s sizeable deposits, cash and bank balances of RM361m as of end 1H15.

We understand that these newly-added radio stations are targeted to cater Malay listeners, with Pi Mai FM mainly in Penang, Kedah and Perak while Ultra FM is focusing on the Klang Valley market.

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.

Forecast

We leave our earnings estimates unchanged for now given the relatively small acquisition.

Rating

UNDER REVIEW (Previously MARKET PERFORM)

Valuation

UNDER REVIEW (previous TP was at RM1.22, based on a targeted FY16 PER of 8.9x) as we are currently reviewing our adex, forex and newsprint prices assumptions, which could lead to us lowering our earnings forecast.

Risks to Our Call

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

Source: Kenanga Research - 2 Oct 2015