Media Prima Bhd
(July 3, RM1.42)
Maintain hold with a lower target price (TP) of RM1.50: As of its first quarter ended March 31 of financial year 2015 (1QFY15), Media Prima Bhd’s earnings stood at RM19.4 million.

This accounts for 11% of our fullyear estimation. Since the beginning of the year, advertisement expenditure (adex) has been rather sluggish. 

We believe there’s no significant improvement in adex from 1Q going into 2Q. Thus, we expect 2QFY15 earnings to be relatively weak, but still higher than in 1QFY15 which has always been the weakest quarter for the group. 

In an attempt to lessen dependency on its two main segments, TV and print, Media Prima will focus on developing more universal content and monetising it.

Media Prima plans to entice the local as well as overseas markets. Also, based on the July to December 2014 circulation numbers released by the Audit Bureau of Circulation, New Straits Times, Harian Metro and Berita Harian circulation has dropped 18%, 23% and 13% year-on-year (y-o-y) respectively.

With the change in media landscape, we expect further erosion in the print circulation.

Looking at its share price performance, the stock has underperformed the market. Year-to-date, it has depreciated 13.7%, a letdown for Media Prima compared to the FBM KLCI, which has dipped 3.9%. It remains to be seen if consumer and business sentiment could pick up in June or July onwards for Ramadan and Raya festivities.

If yes, we believe it is a sign that adex shall normalise in the second half of 2015. Also note that 4Q has always shown stronger adex numbers as adex spending is skewered towards the end of the year. For now, we feel Media Prima lacks any rerating catalyst. The only merit is its decent dividend yield of 6.6% to 7.3%.

Earnings are cut by 10% to 14% due to the uncertain market outlook, cautious adex spending coupled with the impact of the goods and services tax (GST) which will cause a slowdown in adex growth and erodes sentiment further.

Although we like Media Prima for its integrated media business and its monopoly position in the free-to-air segment, we expect sluggish adex growth considering the impact of the GST on consumer spending.

Reiterate “hold”, with TP based on updated four-year average price-earnings multiple of 11 times FY16 earnings per share. — Hong Leong Investment Bank Research, July 3

This article first appeared in The Edge Financial Daily, on July 6, 2015.