Long term gain seen from Media Prima MSS

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Media Prima Bhd
(Nov 10, RM1.83)
Maintain “market perform” with a target price (TP) of RM1.80:
The press recently reported that Media Prima offered a mutual separation scheme (MSS) to its employees as part of the group’s rationalisation and consolidation plan.

The group is targeting 10% of its current workforce (less than 4,600) to accept the offer which will remain open until the end of the month.

A senior management officer from Media Prima was quoted as saying that letters have been issued to all its staff regardless of their years of service in the company.

Employees who choose to take up the offer will be paid a compensation equivalent to 1.5 times their length of service in years multiplied by their last drawn base salary. The MSS scheme is expected to be completed by Dec 15.

We are positive on the news as it could improve the group’s efficiency and profitability over the long term, albeit its financial year 2014 and 2015 (FY14 and FY15) earnings are expected to be dampened by the one-time MSS cost.

Media Prima’s overhead cost stood at RM787.2 million with a total staff count of 4,678 as of end-FY13. Around 81% of the staff is permanent while the remaining are under contract. Age-wise, the majority (or 59.3%) of the employees are between 30 and 50 years old while 411 (or 8.8%) are over 50 years old.

For illustration purposes, assuming 10% of its workforce participate in the MSS scheme with an average five years of service, the exercise will likely cost Media Prima about RM50 million.

Local advertising expenditure (adex) sentiment is expected to remain cloudy, in view of the recent petrol price hike and ongoing subsidy rationalisation plans, which could further dampen the already weak consumer spending.

Moving forward, we understand that Media Prima hopes to continue to focus on growing its advertising revenue, implementing group-wide cost saving initiatives, and expanding its multiplatform content production for market beyond its television network.

We leave our earnings estimates unchanged for now, pending the outcome of the MSS.

Maintain “market perform”. While the group’s outlook appears cloudy, its high dividend yield could provide some cushion to the share price.

Our TP is maintained at RM1.80 based on a targeted FY15 price-earnings ratio (PER) of 13.1 times, representing a six-year average forward PER.

The risk to our call is improvement in adex sentiment. — Kenanga Research, Nov 10


This article first appeared in The Edge Financial Daily, on November 11, 2014.