Media Prima Bhd
(May 15, RM1.65)
Maintain “neutral” with lower target price (TP) of RM1.73 from RM1.79: Media Prima Bhd (MPR) reported its first quarter financial year 2015 (1QFY15) revenue of RM329.4 million (-6.2% year-on-year [y-o-y]), accounting for 21.3% and 20.6% of our and consensus estimates respectively, attributable to continuous market uncertainties and cautious consumer sentiment ahead of the recent goods and services tax (GST) implementation.

The lower revenue, coupled with higher depreciation cost, losses in associate and higher effective tax rate dragged down 1QFY15 net profit to RM18.9 million (-30.1% y-o-y), accounting for only 12.2% and 11.2% of our and consensus estimates, respectively.

Traditionally, 1Q would be the weakest quarter with the major bulk of earnings recorded in the last three quarters.

Nevertheless, our earnings estimates for FY15 to FY17 are lowered by approximately 10% to 11% to account for slower advertising expenditure growth in line with management’s less sanguine outlook.

MPR’s 1QFY15 revenue was dragged down by lower advertising and circulation revenue, which dropped by 7% and 11% y-o-y, respectively.

Advertising revenue was impacted by continuous market uncertainties and cautious consumer sentiment due to the recent GST implementation.

All segments except for outdoor (+4.2% y-o-y) and content creation (+31.9% y-o-y) recorded negative revenue growth y-o-y.

Lower revenue from its TV (-8.2% y-o-y), print (-5.9% y-o-y), radio (-18.0% y-o-y) and digital (-18.5% y-o-y) segments affected the group’s overall performance.

Besides the lower revenue, net profit for 1QFY15 was further affected by higher depreciation costs, losses in associate and higher effective tax rate.

We expect the cautious consumer sentiment in 1Q to drag into the next before slowly normalising in the third quarter as consumers would have gradually adjusted to GST by then, and consumers’ spending picking up due to festive seasons.

Management stressed its commitment in rewarding shareholders based on the group’s strong balance sheet as shown by FY14 dividend which was premised on a 162% payout ratio (86.3% if based on normalised profit), higher than the group’s dividend policy of 60% to 80% of profit after tax and minority interest. 

Despite the cautious outlook for the media industry, we believe MPR’s attractive dividend yield (more than 5%) will support its share price at current levels.

According to Nielsen Corp, 1QCY15 gross advertising expenditure (adex) for free-to-air terrestrial television (FTA TV) was lower by 5.7% y-o-y while gross adex for Pay TV increased to 25.5% y-o-y.

In 1QCY15, television stations TV3’s and NTV7’s gross adex decreased 9.8% and 9.7% y-o-y, respectively.

The losing of FTA TV adex to Pay TV and other digital platforms may affect the group’s performance moving forward.

As management expects another challenging year in 2015, we are lowering our earnings forecast by about 10% to 11% for FY15 to FY17 mainly on assumption of lower adex across TV and print platforms.

We also rolled-over our sum-of-parts (SOP) valuation premised on FY16F’s (forecast) earnings resulting in lower TP of RM1.73 from RM1.79 previously. Our “neutral” call remains. — PublicInvest Research, May 15

This article first appeared in The Edge Financial Daily, on May 18, 2015.