MEDIA’s 1Q16 core PATAMI of RM17m (-9% YoY) came in within expectations. The lower year-on-year performance was mainly due to lower advertising revenue and newspaper sales. Post results review, we lowered our FY16E/FY17E NP by 2.5%/3.0%, after factoring in lower revenue and margin assumptions. Maintain MARKET PERFORM but raise target price to RM1.45 (from RM1.39 previously) after rolling over the valuation base year to FY17E with an unchanged targeted PER of 11.1x, representing a targeted -1.0x SD below the 6-year mean.

In-line. MEDIA’s 1Q16 core PATAMI of RM17.2m (-9% YoY) came in within expectations at 12.3% of our, and 11.7% of the street’s, full-year estimates. Note that 1Q 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. Financial-performance-wise, 1Q normally makes up 10- 19% of the full-year NP, based on the past five years’ records.

No dividend was announced during the quarter, as expected. For the full financial year, we expect MEDIA to distribute a total dividend of 9.5 sen, translating into a yield of 6.7% with 77.2% payout ratio (in-line with its dividend payout policy of 60%-80% of PATAMI). YoY, 1Q16 net revenue came in lower at RM304m (-8%), no thanks to the lower advertising revenue and newspaper sales. EBITDA, however, deteriorated by 15% with margin lowered to 16% (vs. 18% a year ago) as a result of higher overheads cost. Despite lower EBITDA, the group’s PATAMI merely weakened by 9% in tandem with its topline performance due to a lower effective tax rate of 19% (vs. 25% in 1Q15).

QoQ, the group registered a seasonally weaker 1Q16 at the net revenue level (-46%) with lower contribution seen across all segments. PATAMI, meanwhile, contracted by 46% due to lower turnover, higher operating costs and weaker margins.

Outlook. The adex sentiment is expected to remain cautious, in view of the current economic condition and increase in cost of living. We have thus, lowered our FY16E industry full-year gross adex revenue growth to 4.0% YoY (vs. 5.5% YoY previously). Meanwhile, shift in advertisement delivery to digital media, customer fragmentation, and increased competition will continue to pose challenges to the group.

No exiting FTA platform. Management has reiterated its intention to stay in FTA platform and will continue to negotiate the transmission cost structure with MYTV despite the current unfavourable rates. Note that, MYTV was granted a license by the Government to operate the infrastructure and network facilities for Digital Terrestrial Television (DTT) services for 15 years. Incumbents would have to pay RM12m (per channel) rental fee for broadcasting in standard definition (SD) format and RM25m for high definition (HD) channel as compared to MEDIA’s current annual transmission cost of c.RM40m. MYTV is set to launch its digital services in August 2016 while the targeted total analogue switch off date for Malaysia is scheduled at end-June 2018,

WOWSHOP updates. MEDIA’s home shopping business has performed well since being launched on 1 April. The segment has recorded RM6.0m turnover during the first month or 30% higher than internal estimation. Management remains hopeful on its outlook and expects it to achieve more than RM150m turnover in 2017 and break even a year later. The home shopping business is currently broadcasting 16 hours of on non-prime time slots on existing TV channels with various ranges of products offered, i.e. home & living, beauty, fashion and digital. 

Source: Kenanga Research - 13 May 2016