Media - NEUTRAL - 28 March 2012

We are maintaining our NEUTRAL view on the media sector. Post 4QCY11 results, media companies have started to change their bearish views to being more optimistic given the improved outlook for both consumers and advertisers. Despite the first two months gross adex  seeing a contraction of -1.7% YoY, we are keeping our full year +11.1% YoY growth forecast unchanged for now. There is no change in our earnings forecasts for media companies under our coverage. We are maintaining Media Chinese International (“MCIL”) target price of RM1.30 with an OUTPERFORM recommendation while keeping MARKET PERFORM ratings on both Star Publications (“Star”)  and Media Prima (“MPR”) with unchanged target prices of RM3.40 and RM2.72 respectively, 

CY11 results snapshot.  Most of the media company results under our coverage came in above ours and the street expectations. The main culprits were due to better costs efficiency and higher-than-expected sales as a result of seasonal factors. In view of their encouraging results, especially for the latest quarter, media companies have started changed their bearish views to being more optimistic given the  improved outlook for both consumers and advertisers. Dividend-wise, Star declared a total 18.0 sen in FY11, which translated into a dividend payout ratio of 71%, and in line with its dividend payout policy of 70%-80%. MPR on the other hand declared a total full year dividend of 16.0 sen. This translated to a dividend payout ratio of 91.8% and exceeded the company policy, which sets its payout policy at between 25%-75% of PATAMI. No dividend was declared by MCIL as expected given that the company tends to declare it on a biannual basis. 

Adex gathers momentum in FY11 but soften in the first two months of 2012. The country’s media gross adex gained momentum and recorded a rise of 11.9% YoY to RM10.8b (including  Pay-TV  segment)  in  CY11,  thanks to the TV and newspapers' segments, which jumped by 13.3% and 11.9% to RM5.5b and RM4.4b respectively. For the YTD adex (until February),  it  has  softened  by  -1.7%  YoY  to  RM1.41b  as  a  result  of  lower  free-to-air  TV  and newspapers adex, which fell by 10.6% and 2.0% to RM365m and RM596m respectively. The slowdown in our view was mainly due to a shorter pre-Chinese New Year advertising period and advertisers conserving their A&P budget as they renegotiate ad rates with media owners.  All the media companies are currently expecting the country’s overall gross adex to grow at a high single digit in CY12 as compared to our low double digit growth expectation. We expect gross adex at RM11.9b, or +11.1% YoY growth, based on 2.3x GDP multiplier (average of the past two GE years).                                     

The Malay print market adex share exceeded that of the Chinese in FY11, in line with the growing readership in the Malay segment according to Nielsen Media Research.  The research outfit indicated that the Malay print market adex share has increased to 31% (FY10: 26%), overtaking the 29% share (FY10: 30%) of the Chinese segment. English language on the other hand continued to dominate the print market share with a 40% share, although this is lower than its 44% share in the preceding quarter (figure 1 & 2). 

Newsprint cost hovering at an expected trading range.  Newsprint price is currently trading at around USD650-670/MT, in line with the industry players’ expectation, and is expected to hover at the current level during 1HCY12 as a result of deteriorating newspaper pulp price. Nevertheless, industry players are expecting the newsprint price to trend higher in 2H due to potential higher demand from North America. MCIL is currently holding a 6 to 8-month newsprint inventory with an average cost of USD700/MT. New Straits Times and Star, on the other hand, are currently holding 8-month and 12-month newsprint inventories respectively (the highest among the industry), with an average cost of USD720/MT and slightly below USD700/MT respectively. We have imputed an average of USD700/MT, USD720/MT and USD700/MT newsprint cost assumptions for MCIL (for FY13), MPR and Star respectively.        

Source: Kenanga