Media Prima - Recovery in 4Q, potential dividend upside BUY

- We re-affirm our BUY recommendation on Media Prima (MPrima), with an unchanged fair value of RM2.90/share, based on our DCF value, following the release of its FY12 result.

- MPrima’s FY12 core net profit of RM209mil came in within our, and consensus, estimates. 

- Inclusive of the proposed 7sen/share dividend, total dividends to-date amounted to 13 sen/share. This translates into 6.1% yields, representing a 67% payout ratio.

- FY12’s bottom line grew by 2% in tandem with a topline growth of 5%. EBITDA margin remained flat. Sequentially, core net profit recovered and jumped by 23% driven by the festive season, school re-opening sales and adex by non traditional advertisers. The increased advertising spend in the 4Q came as no surprise as advertisers normally utilise their budgets towards the yearend. 

- Nonetheless, with advertisers; continued cautious sentiment over the election uncertainty and “wait-and-see” approach this quarter, management is expecting a stronger 2H adex instead, post-election. The group targets to achieve an adex growth of 5%-7%.

- Post result adjustments, our estimates suggest earnings to expand by 5%-6% in FY13F-FY15F. We are introducing  our FY15F earnings at RM246mil. 

- As part of its medium- to long-term strategy, the group is focused on building content, which is part of the non-adex revenue stream. This enables monetisation of content, given the high content cost. Approximately 60% of the local content within the FTA channels are produced in-house.

- More importantly, the dividend policy is currently up for revision – revised every 3 years – which will only affect the lower band of the dividend policy. The revision is envisaged to materialise in the 3Q-4Q.  The current dividend policy stands at 25%-75%. We have upped our payout ratio to 67% for FY13F-FY15F – at parity to FY12. 

- The potential for a dividend upside translates into decent yields of 6%-7% for FY13F-FY15F. This is comparable to Star Publications (Star Mk Equity, BUY) and Media Chinese International (MCIL Mk Equity, BUY) of 7% and 6% yields, respectively.  This is further bolstered by a cash  cushion of RM647mil as at end-FY12 and an after-tax free cash flow yield of 11%.   

- Over the past year, the stock have retraced by 14%  and underperformed the KLCI by 21%. The current share price is 41% below its 2-year high of RM3.00/share.

- At the current level, the stock is trading at an implied PE of 11x of FY13F, at the trough level of its historical PE.

Source: AmeSecurities