By Lawrence Yong
Analysts called on investors to buy Media Prima stocks, which have rallied by over 33% to new heights in post-GE13 trade, as it has strong fundamentals. Its earnings may get a boost from advertising expenditure (adex), while its dominance of Malay-language newspapers augurs well for the company.
In a new report issued Friday, bank-backed AMResearch said that Media Prima was fairly valued at RM3.17, close to a six-year high reached on May 28. The rally has fizzled a little recently and on Friday midday, the stock was trading at RM2.69 on Bursa Malaysia, down 2.18%.
“We gather that with the improving market sentiment after the general elections, management expects Media Prima to benefit from a sequential recovery in adex in 2H13, with an even better FY14 outlook,” AMResearch noted after a company visit.
AMResearch said that it has raised its earnings outlook for Media Prima by 2% to 4%. Using a discounted cash flow valuation model, it estimated that Media Prima was worth a buy.
RHB Research also made Media Prima its top pick for the sector, over Astro Malaysia, Catcha Media and Media Chinese International (MCIL) in a note issued this week. RHB Research has set a fair value for Media Prima at RM3.60.
“We continue to like Media Prima for its fully-integrated media business model which enables the group to be the main beneficiary of a possible adex recovery in 2H13,” said Jerry Lee, RHB Research’s media analyst.
Based on a recent Nielsen Media Survey, adex for (free-to-air) FTA TV continue to grow for the first five months of 2013, up by 10.4% year-on-year to RM1.2 billion. For May alone, FTA TV adex was up 6.4% at RM270.9 million, compared to the same month last year. Media Prima operates four of the six major FTA television channels in Malaysia, namely TV3, ntv7, 8TV and TV9. The strongest adex growth was seen for TV9, which recorded a 28% rise in adex for May 2013.
Media Prima also has an advantage in selling its TV programmes, AMResearch noted. The media conglomerate produces 5,500 hours of content yearly and management believes that there is a ready market for content with the rise of TV operators. Currently, FTA channels consist of 70% local content and 30% foreign syndicated content, of which 60% of the local content is produced in-house, while the rest is outsourced, AmResearch noted.
“We learnt that its content production team was mandated to produce material to sell to stations/broadcasters other than within the group,” RHB’s Lee noted.
As an added advantage, Media Prima also has an online TV channel. Its ‘Tonton’ video portal, currently has approximately 2.9 million subscribers and is targeted to exceed three million this year. Media Prima was waiting for higher broadband penetration in Malaysia before fully promoting the portal.
Even in dwindling print segment, Media Prima has also seen to come up better than its peers due to its dominance of Malay-language newspapers through best-selling Berita Harian and Harian Metro. Nielsen survey said English-languages newspapers saw the sharpest fall in adex in May, down 11.8% year-on-year while Malay newspapers adex were 3.3% lower. Media Prima also owns The New Straits Times Press Bhd, which publishes the New Straits Times.
The company may also benefit from lower newsprint prices. AMResearch said that the spot newsprint was last traded at US$592/tonne, falling from last year’s US$650/tonne levels.
“Given Media Prima’s current newsprint inventory policy of only three to six months and quarterly restocks, we view that the company is in a position to gain from the favourable newsprint price at the moment, ” it noted.
Investors can also look forward to higher dividends from the cash rich company. Its dividend policy of 25% to 75% may be pushed upwards in a review due in 3Q13. AMResearch anticipates a 70% payout, which would equate to 15 sen/share, yielding a good 5% returns at current stock price.
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