Media Prima - Decent set of 9MFY12 result BUY

- We re-affirm our BUY recommendation on Media Prima (MPrima), with an unchanged fair value of RM2.90/share, based on a 10% discount to our DCF value, post its 3Q results. Our fair value implies an FY12F PE of 13x – below its five-year average PE of 20x. 

- MPrima’s 9MFY12 earnings of RM137mil account for 66% of our FY12F earnings and 69% of consensus’. However, we deem the results to be within expectations, underpinned by a recovering adex sentiment and seasonally stronger 4Q. We are expecting advertisers to exhaust their budget towards the year-end.

- We maintain our FY13F-FY15F earnings. The industry  is showing positive signs of an improving adex, as reflected by a 6.1% MoM growth in October. However, we understand advertisers are still rather cautious due to the uncertainty over the impending General Election. 

- A second interim single-tier dividend of 3.0 sen/share was declared, bringing the total to 6.0 sen/share to-date. We have assumed a DPS of 11.0 sen, the same as FY11’s. Therefore, translating into a decent dividend yield of 4.5% and a payout of 57%, in line with management guidance of 25%-75%.

- Although revenue slid slightly by 2% due to more advertisers in 2Q attributed to the EURO 2012 compared with the London Olympics, MPrima’s 3QFY13 net profit improved by 4% QoQ. 

- Sequentially, all segments showed growth except for print that contracted by 10% in PAT, on the back of 2% fall in revenue as well as higher newsprint and overhead costs. Positively, newsprint price have soften to US$620/MT currently and MPrima should benefit from cost savings. Despite industry contraction in print by 1% MoM and 5.5% YoY for October, we see continuing readership growth within the Malay-language newspaper segment driven by more than half of the population who are Bumiputera. This appears to be a positive for MPrima allowing it to further strengthen its dominant position within the Malay-language print segment. Radio, on the other hand, grew by 7% in PAT stemming from a higher Chinese market share via OneFm.

- During the quarter, the group had launched the digital paper across the board, to remain relevant within the digital space given the rising popularity of smartphones and tablets.  

- MPrima is expanding its revenue stream by growing the non-TV segments, particularly in content creation via its  content arm, Primeworks Studios. Starting this year, the group has been building its non-adex revenue via content, where Primeworks produces and sells contents to third party TV channels. Although earnings contribution is small for now, this is a potential long-term growth given the high content cost. To-date, its FTA channels comprises 70% local content, and the remaining foreign syndicated. From the local content pool, 60% are produced in-house.

- Given MPrima’s virtual monopoly in the FTA TV space, commanding the lion share of circa 80% and as a fully integrated media group, we remain positive on MPrima.  

Source: AmeSecurities