By G. Sharmila
Analysts are mixed on the prospects for Media Prima Bhd, the country’s largest media group, due to the first-half lower adex by advertisers, as well as changing viewer and reader tastes. The company’s share price has also fallen by 50% in the past year, making us wonder if it is a good time to buy on weakness.
Business model: Media Prima was founded in 2003, and is listed on the Main Market of Bursa Malaysia. It is Malaysia’s largest media group, with a market capitalisation of RM1.32 billion as at Aug 17.
The group owns a majority stake in New Straits Times Press (M) Bhd – which publishes The New Straits Times, Berita Harian, and Harian Metro. Under its umbrella, there are also three radio stations (Fly FM, Hot FM, and One FM) and four TV stations (TV3, 8TV, ntv7, and TV9).
Media Prima also owns Media Prima Digital, which runs lifestyle portals gua.com.my and tonton.com.my. The media group is also involved in the outdoor advertising sector and owns Big Tree Outdoor, UPD, The Right Channel, Kurnia Outdoor, and Jupiter Outdoor Network.
In addition, Media Prima also owns Primeworks Studios Sdn Bhd, the largest production company in the country, which has been producing TV content and feature films since 1984 and 1994 respectively.
Shareholder and management assessment: Perhaps the most interesting news concerning Media Prima’s management was the recent announcement of the resignation of its chairman Johan Jaaffar, with effect from the end of this month. Replacing him is Fateh Iskandar Mohamed Mansor.
Johan, an advisor for the Malaysian Anti-Corruption Commission (MACC), also denied any pressure to resign in the announcement of his departure. In the past, he had been vocal about controversial events related to MACC investigations.
Another noteworthy member of management is group managing director Amrin Awaluddin, who was appointed to the board in September 2009. He has held various positions in the group, including that of chief financial officer prior to his appointment as group managing director. Before joining Media Prima, Amrin was with Amanah Merchant Bank Bhd, Renong Bhd, Malaysian Resources Corp Bhd, and Putera Capital Bhd.
As at Aug 14, Media Prima’s major shareholders are the Employees Provident Fund (with a 15.2% stake), Amanah Raya Bhd (11.1%), Altima Inc (8%), and Skim Amanah Saham (5%).
Share performance: According to Bursamarketplace.com, as at Aug 17, the stock has a negative one-year return of 50.21%. Data from Bloomberg showed that it has a 52-week trading range of between RM1.11 and RM2.38. Trading in the stock has been rather volatile, as indicated by its 1.66 beta coefficient on Reuters.com. (A beta coefficient of 1.0 and above indicates high trading volatility, meaning that trading in a stock is more volatile than its peers on the stock exchange.)
MIDF Research highlighted in previous reports that Media Prima has a dividend payout policy of 60% to 80% of its earnings.
What analysts think: Analysts that KINIBIZ tracks appeared to be mixed on the prospects of Media Prima, with two research houses with “buy” calls on the stock (MIDF Research and AmResearch), while HLIB Research has a “hold” rating and AffinHwang Capital has a “sell” rating on the stock.
In a report dated Aug 14, MIDF Research, which upgraded the stock from “neutral” to “buy”, said that the weak operating environment had negatively impacted the company’s revenue.
“Based on our channel check, the situation is expected to continue for the next one year as consumers are adjusting to the new tax system. In times of adversity, the group managed to perform considerably well through various cost-cutting exercise such as production cost savings and mutual separation scheme (MSS). This helped to support the drop in earnings through improvement in profit margin,” it said.
It noted that year-to-date, the share price had retraced by -35.2%, adding that the negative sentiment had been priced in.
“At current share price level, valuations also appear to be attractive at below 10 times. Moreover, we view that Media Prima should not have much difficulty paying dividend of at least 10 sen per share due to its sustainable earnings. This provides an attractive dividend yield of approximately 9% to 10%. As such, the current level of share price provides a good opportunity for investors to increase exposure in the stock,” MIDF added.
AmResearch, which also has a “buy” rating on Media Prima, noted that due to poorer advertising expenditure (adex), almost all of the media group’s segment revenues were lower, with the exception of the content creation (“others”) which doubled its non-adex profits due to higher sales of its content to international customers.
This is in line with Media Prima’s plans to be an international-quality content provider and reduce its dependency on adex revenue, the research house said.
“We expect the final two quarters to be challenging, due to lower consumer sentiment from the goods and services tax (GST) and uncertainties in the domestic environment. Hence, we have lowered our adex assumption in our forecasts by 5% to 10%.
“However, we are positive that its bottom line will be sustained due to strict cost savings taken, notably the company-wide MSS completed in financial year 2014. In addition, management has been actively conducting process improvement measures across the board such as changing to 42-gramme-per-square-metre newsprint paper, which provides better printing yields by approximately 5%,” the research house said.
Others were also concerned about weak adex growth.
HLIB Research, while saying that it likes the company for its integrated media business and its monopoly position in the free-to-air segment, the research house said it also expects sluggish adex growth, considering the impact of the GST on consumer spending, to limit profitability.
Similarly, AffinHwang’s sentiments echoed that of HLIB where adex is concerned.
“We are still cautious on Media Prima due to the unfavourable shift in broadcast adex towards the pay TV segment; potentially cautious ad spending given the GST implementation and uncertainties in the market; rising competition from other broadcasters; negative effects on adex due to declining TV viewership; and negative effects on hard copy circulation due to the continual shift in readers’ preferences for reading on mobile or over the Internet,” it said.
Earnings forecast:
StockStalk: With its share price having fallen as much as 50% in the past year, one may be sorely tempted to rush into buying Media Prima shares. Only fools rush in, as they say, so our advice is to adopt a wait-and-see attitude before buying on weakness.
If, however, you’re the kind of investor that has a strong stomach and prioritise dividends over growth and stability, then this may be the right stock for you to invest in. We suggest you keep in mind of lower adex spending and the aftereffects of the GST before you take the plunge. It is definitely not a stock for the faint-hearted.
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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
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