Media Prima Bhd
(Jan 2, RM1.76)
Maintain hold with lower target price of RM1.80: Media Prima raised the cover prices of its Malay and English newspapers effective Jan 1. Both the cover prices of Malay-medium newspapers Berita Harian and Harian Metro (HM) increased by 20% or 30 sen from RM1.50 to RM1.80 for Peninsular Malaysia, while the cover price of HM was increased by 33% or 50 sen for Sabah and Sarawak. In addition, the cover prices for its English newspaper New Straits Times was raised by 25% or 30 sen to RM1.50 from RM1.20 for Peninsular Malaysia and by 11% or 20 sen for Sabah and Sarawak.

We are positively surprised by the company’s decision to raise its cover prices amidst market uncertainty and soft advertising expenditure. We estimate that the price hike could improve the group’s print margin and increase its financial year 2015 (FY15) and FY16 earnings per share (EPS) by 5% to 6% if the group can maintain its circulation volume. Nevertheless, we see a potential 10% to 20% drop in circulation volume on top of the already declining trend in print circulation, which may reduce the positive impact of the newspaper price hike. The company had also recently completed its mutual separation scheme which could bring annual savings of about RM45 million, based on a 10% headcount reduction.

We maintain our “hold” rating due to its attractive FY15 yield of 6.9% and strong balance sheet position with a healthy free cash flow generation. — CIMB Research, Jan 2

This article first appeared in The Edge Financial Daily, on January 5, 2015.