Maintain HOLD and MYR1.48 TP

MPR has made its displeasure with MYTV’s transmission fee charges evident and is opposed to migrating to the DTTB platform in a worst case scenario. Its refusal to migrate will adversely affect both MPR AND MYTV. Based on our scenario analysis, SD broadcasts migration for all four of MPR’s FTA TV channels is the ideal outcome for both parties as the earnings impact to MPR will be minimal. Maintain HOLD and MYR1.48 TP (based on 1.3x end-FY16 P/BV).

MPR prepared to opt out of DTTB migration?

The Edge Financial Daily reported yesterday that Media Prima (MPR) is prepared to withdraw its free-to-air (FTA) channels from the impending migration to the digital terrestrial TV broadcasting platform (DTTB) if the proposed transmission fee charges remain unchanged. Recall, MYTV Broadcasting (Not Listed), is proposing an annual transmission fee of MYR12m per standard definition (SD) channel and MYR25m per high definition (HD) channel on migration to the DTTB platform by Jun 2018.

Migrating to SD broadcast, most likely scenario

We postulate three possible scenarios for MPR: (i) MPR’s FTA TV channels migrate to SD broadcast (-MYR8m impact to earnings), (ii) MPR’s FTA TV channels migrate to HD broadcasts (-MYR47m impact to earnings), and (iii) MPR’s FTA TV channels do not migrate to the DTTB platform. By our estimation (see overleaf), the least impact will be to migrate MPR’s four FTA TV channels to SD broadcasts which will also maintain its presence in the FTA TV space and keep existing operating expenses minimal.

Not in MYTV’s interest not to be without MPR

As the DTTB platform owner, it may seem that MYTV has the upper hand. On closer inspection, MPR commands 90% share of FTA TV adex share and is therefore, not without leverage. We opine that it is not feasible for MYTV to rely solely on Radio Television Malaysia (RTM)’s three incumbent FTA channels: RTM1, RTM2 and Al Hijrah as they command only 10% share of FTA TV adex share.

Source: Maybank Research - 10 May 2016