INVESTMENT HIGHLIGHTS

• Acquisition of the entire stake in Rev Asia Holdings Sdn Bhd (Rev Asia) for RM105m

• Creation of the largest Malaysian digital media company

• Hefty cost of acquisition which could potentially limits future M&A activities and dividend payment

• Maintain NEUTRAL with an unchanged target price of RM1.10 per share

Proposed acquisition. Media Prima Berhad (MPB) is acquiring the entire stake of Rev Asia from Rev Asia Bhd and Youth Asia Sdn Bhd which currently owned 70% and 30% stake respectively (refer to diagram 1). Under the agreement, MPB will pay a total sum of RM105m.

Extending its digital reach. Following the acquisition, MPB will add another nine brands under its digital portfolio, which includes SAYS.com, JUICE, OhBulan!, 8Share, Viral Cham, Rojaklah, Siraplimau, Myresipi and Kongsiresepi. These further increases MPB’s reach in the digital realm to nine million audiences (refer to diagram 2). Rev Asia target audiences are predominantly aged between 18 to 35 years old This will complement MPB’s existing audience base. In addition, the acquisition will enables MPB to tap into Rev Asia’s competencies such as digital marketing, content creation and native content ads.

Cash position. As at end of 2016, MPB has a net cash of RM75m. Coupled with RM200m medium term notes (MTN) which has yet been issued, MPB will have a total cash reserve of RM275m. This would enable the group to support the acquisition through internally generated funds. However, we view that the acquisition would limits future M&A activities should MPB want to maintain a healthy cash reserve and dividend payment.

Pricey acquisition. We deemed the acquisition price to be on the high side. Premised on Rev Asia’ FY16 earnings of RM4.2m, the acquisition translates into a PER of 25x. This is above MPB’s 5-year historical average PER of 14.5x. Nonetheless, the purchase consideration came in at the lower end of the independent valuer’s estimation of between RM100m to RM118m.

Source: MIDF Research - 9 May 2017