Media Prima’s 1H15 earnings were broadly in line, making up 43%/42% of our/consensus estimates. Upgrade to NEUTRAL (from Sell), on valuation grounds, with a revised TP of MYR1.21 (from MYR1.40, 6% upside). Despite the lower revenue, it sustained its margin due to costsaving measures taken across the business and the mutual separation scheme (MSS) undertaken in 4Q14.

Flat earnings growth. Media Prima’s 1H15 earnings came in flat YoY atMYR62.8m despite 6.4% YoY decline in revenue due to sluggishadvertising expenditure (adex) amidst a lacklustre economic sentimentpost-GST. Net adex revenue contracted 5% YoY while circulation revenue by print media was down 15% YoY. Nevertheless, cost savingmeasures across the business, in particular the print media segment, coupled with the MSS undertaken in 4Q14 helped sustain earnings and margins for the duration. Earnings growth in all business segments werelower except for digital media (+52.8% YoY) and content creation (+85.6% YoY). Primeworks Studios, Media Prima’s content creation arm, performed strongly on higher content sales to international clients.

Outlook. Media Prima will continue to focus on delivering high-quality content to increase external revenue domestically and regionally. It is also exploring non-traditional revenue streams in the form of home and online shopping while pledging to maintain cost discipline.

Dividend. Media Prima declared a first interim DPS of 3.0 sen, to be paid on 30 Sep 2015. Management reiterated its commitment to pay out a minimum 60% of earnings in dividends, which implies a dividend yield of 7.1% at the current price levels.

Upgrade to NEUTRAL. We remain cautious on Media Prima’s nearterm prospects, given the weak adex growth outlook (84% of revenue is adex-based) as we expect consumer sentiment to remain sluggish in 2H15 due to the GST and weaker MYR. Consequently, we cut our TP to MYR1.21 (from MYR1.40) on a lower FY15F P/E of 9x, ie at -2.0SD (from 10.8x) from its historical trading band to reflect the earnings risk. Despite this, we upgrade the our call to NEUTRAL (from Sell) as we believe that this is fairly well reflected in the price after a 35% YTD retracement – while the stock offers a good dividend play, given its attractive yield.