Media Prima Bhd
(Feb 3, RM1.79)
Upgrade to buy at RM1.82, target price raised to RM2.17: Media Prima is due to release its fourth-quarter results for 2009 (4QFY09) on Feb 24. We understand that TV revenue for the quarter recorded year-on-year (y-o-y) growth as advertisers exhausted their advertising and promotional budgets before year-end.

We expect 4Q revenue and core pre-tax profit to surpass the RM200 million and RM50 million level recorded respectively in 4QFY08, making it Media Prima’s second successive quarter of y-o-y pre-tax profit recovery.

We upgrade our FY09-FY11 earnings per share (EPS) estimates by 27% to 46%, ascribing 13 times 2011 forecast price earnings (PE) from 16 times 2010F previously. We therefore arrive at a new target price of RM2.17 from RM1.69 and hence upgrade our call on Media Prima to buy.

Media Prima is trading at only 11 times one-year forward PE, or higher than the trough. Assuming New Straits Times Press (NSTP), of which Media Prima owns 90%, is valued at 16 times 2011F PE (The Star’s 12-year average one-year forward PE), Media Prima’s core business is undervalued at only eight times forward PE.

Going forward, we consolidate 100% of NSTP’s earnings. Due to new shares issued from the voluntary general offer, we increase Media Prima’s share base from 860 million to 1.1 billion. We have also revised TV adex contraction of 8% for FY09 and growth of 6% for FY10 and FY11.

With regard to annual commitment discussions with its advertisers, we understand that Media Prima has secured at least 3% to 5% higher advertising expenditure (adex) budgets from them.

We believe adex will continue to grow, and Media Prima should trade at valuations similar to those recorded in 2006.

We also like Media Prima for its potentially attractive net dividend yield of 4% and above. We understand it may book RM100 million in negative goodwill from the MGO (mandatory general offer) of NSTP; Media Prima may pay more dividends based on the higher reported net profit and not on the lower core net profit.

Assuming this, after subtracting (Philippine branch) MPB Primedia Inc’s exceptional losses of RM50 million and assuming an unchanged 50% dividend payout ratio, we estimate that Media Prima may pay an additional 2.5 sen net dividend per share. — ECM Libra Investment Research, Feb 3
This article appeared in The Edge Financial Daily, February 4, 2010.