This article first appeared in The Edge Financial Daily on September 25, 2019
Media Prima Bhd
(Sept 24, 47 sen)
Maintain reduce with an unchanged target price (TP) of 38 sen: Media Prima Bhd’s Sept 23 stock exchange filing disclosed that Tan Sri Syed Mokhtar Albukhary-owned Aurora Mulia Sdn Bhd (unlisted) bought 88.3 million Media Prima shares on Sept 19. The shares made up 7.96% of Media Prima’s share base. According to sources cited in a Sept 20 report by The Edge Financial Daily, the seller was Altima Inc (unlisted), a trust company for opposition party Umno.
With this round of purchase, Aurora Mulia holds a 31.22% equity interest in Media Prima.The buying spree began on July 2, when the former acquired 132.4 million or 11.09% of Media Prima shares from another reported Umno trustee, Gabungan Kesturi Sdn Bhd (unlisted). Bloomberg data on off-market trades showed that all the Media Prima shares were effected at 60 sen apiece.
To trigger a mandatory general offer (MGO), Aurora Mulia has to satisfy one of the two conditions set by “Rules on Take-Overs, Mergers and Compulsory Acquisitions”: i) it breaches the 33%-50% creeping threshold; or ii) it is in a position to control the composition of a majority of the board of directors.
Aurora Mulia is already the largest shareholder of Media Prima, which gives it the discretion to have board representatives. And, there is only 1.78% of Media Prima’s share capital that it needs to acquire to hit the creeping threshold.
While it seems like an MGO is within reach, roadblocks are ahead. Media Prima’s management, which revealed at the group’s first half of 2019 briefing that it had engaged in informal discussions with Aurora Mulia’s representatives, said it believes Aurora Mulia may not trigger an MGO. This could imply that Aurora Mulia has no plans to raise its stake in Media Prima to hit the creeping threshold, or assume control of the board.
The best hope for an MGO lies in the possibility of Syed Mokhtar being also the end-beneficiary of the 12.84% stake held by Mitsubishi UFJ Financial Group Inc, as what various publications have reported. Aurora Mulia’s and Mitsubishi UFJ’s combined equity interest in Media Prima comes to 44.06%. Yet, there is no public record to prove the identity of the true shareholder of the stake held by Mitsubishi UFJ.
Without the MGO angle, Media Prima remains a “reduce” as we believe its cost-cutting measures are not likely to chart a sustainable turnaround trajectory. Our TP remains at 38 sen, which is valued at 0.8 times financial year 2020 forecast (FY20F) price-to-book value. We view the discount as an indispensable buffer to the loss risk that Media Prima carries, which we forecast to continue through FY21F.
Even if one takes the view that an MGO may occur, it may not be worth the risk to pursue the stock when the potential 27.7% upside (from the 60 sen share paid by Aurora Mulia) is similar to Astro Malaysia Holdings Bhd’s (Astro, add, TP RM1.80) 27.7% potential upside from our TP. Astro’s risks are also abated as it makes for a strong proposition to investors seeking shelter from the compression of global interest rates; it comes with calendar year 2019 (CY19) to CY20F yields of 6.8% to 7.1% that make up less than 60% of its FCF. — CGS-CIMB Research, Sept 24