Media Prima — Slight growth in TV, newspaper adex in 2011

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Media Prima Bhd(Jan 5, RM2.70)Recommend buy at RM2.70 with revised target price RM3 (from RM2.72): Media Prima’s share price hit a 23-month high of RM2.70 on Jan 4. We believe that it is beginning to dawn on investors how robust its 2010 earnings will be. We understand 2010 TV and newspaper adex growth will end in the mid teens year-on-year against our assumption of 10% y-o-y for TV adex growth and a mere 5% y-o-y for newspaper adex growth. This implies 4Q10 TV and newspaper adex will remain relatively unchanged quarter-on-quarter despite a dearth of adex-friendly events.

While newspaper adex growth has been encouraging, this is surprising in light of declining circulation for Berita Harian and New Straits Times. We understand that increasing circulation for Harian Metro encouraged existing advertisers to shuffle more of their budget to Harian Metro from Berita Harian and New Straits Times instead of advertising in newspapers outside the NSTP group.

We understand from the company, and have verified with media buyers, that 1Q11 TV adex is poised to grow by low double digits y-o-y. This is very respectable given the lack of adex-friendly events this year, save for maybe the 14th general election. We note that gross total adex growth during quarters with general elections surged by more than 20% y-o-y.

Our revised estimates account for higher 2010 TV and newspaper adex growth of 15% tempered by revised newspaper circulation (assumes no circulation growth post-2010) and widening losses at New Media due to start-up costs for TonTon. We continue to conservatively assume 5% TV adex growth (one time real GDP growth) and 2.5% (½ time real GDP growth) newspaper adex for 2011 and beyond despite early indicators to the contrary.

Ascribing an unchanged 18 times one-year forward price-earnings ratio, we upgrade our target price on Media Prima from RM2.72 to RM3. We estimate that should Media Prima employ a net dividend payout per share of 75%, investors can expect another eight sen net dividend per share, or 3% net dividend yield (3Q10: 4 sen net DPS). Recall that Media Prima revised its net DPS policy from 25% to 50% to 25% to 75% in 3Q10. — ECM Libra Investment Research, Jan 5

This article appeared in The Edge Financial Daily, January 6, 2011.