Media Prima - More promising prospects in the upcoming months

-  We are maintaining our BUY recommendation on Media Prima (MPrima), with a lower fair value of RM2.90/share vs. RM3.10/share previously, based on a 10% discount to our DCF value.

-  Following a company visit, we have fine-tuned and trimmed our FY12F-FY14F earnings by 1%-2% due to a rather weak 1Q stemming from cautious advertisers’ sentiment. Nevertheless, earnings momentum in 2Q is picking up from Euro 2012, and should sustain in 3Q from the London Olympics 2012, Hari Raya and the Independence Day. Furthermore, advertisers have not cut their annual advertising budgets.

-  Going forward, content creation will become MPrima’s key business focus for the TV segment.  We understand that MPrima sells in-house content to Pay TV operators and concurrently, this content is available on FTA TV. Such an arrangement could potentially be a new income stream and it would also able to amortise and monetise the high content costs.

-  MPrima anticipates that upcoming TV players are unlikely to affect viewership as it targets the mass market, which is geographically well-diversified nationwide. As long as viewership is maintained at 2mil-2.5mil on average, advertising dollar will eventually come in.

-  Given that we see the potential for Internet adex to grow at a faster pace going forward in tandem with the rising number of Internetsavvy households, MPrima’s move to digitalise print (with the recent launch of digital paper on mobile, online, print and tablet edition) would stretch its lifespan to remain relevant in the digital era.

-  We believe that the impact of the new ruling for content sharing is likely to be neutral on MPrima. In most cases, sporting events tend to attract enormous costs. Management is of the view that it is unlikely to cannibalise, especially at the expense of other popular programmes which are already on air. 

-  Newsprint prices have softened and remained fairly flat. The current spot price is at US$621/MT and is unlikely to exceed US$700/MT (including duties and freight charges) due to declining commodity prices. However, with the strengthening of US$, this could translate into a higher newsprint cost.

-  Taking all in, we have revised our newsprint price assumption at US$700/MT from US$750/MT previously. Annual budgeted capex remains at RM100mil. Our adex growth forecast remains

unchanged at 8%-9% for FY12F, in line with our in-house GDP growth forecast of 5%, based on a GDP multiplier of 1.7x. We believe this is achievable considering that Euro 2012 and London Olympics 2012 would further stimulate ad spend.

-  Our BUY conviction is premised on:- (1) Strong position and best proxy in Malaysia due to its fully-diversified media platform; (ii) Dominant position in the Malay-language print segment; and (iii) Virtual monopoly in the FTA TV segment with the lion share of 80%.

Source: AmSecurities