Media Prima Bhd (Nov 18, RM2.24) Maintain buy at RM2.22 with target price RM2.72: Media Prima (MPR) recorded 3QFY10 core net profit of RM51.3 million (+65% year-on-year, +64% quarter-on-quarter) bringing 9MFY10 core net profit to RM110.5 million (+183% y-o-y) or 72% of our earnings estimate. 9MFY10 revenue of RM1.1 billion (+116% y-o-y) and earnings before interest, tax, depreciation and amortisation (Ebitda) of RM267.3 million (+150% y-o-y) was above expectations at 78% and 79% of our 2010 estimate. 9MFY10 core net profit would have been higher by RM12.4 million if not for an ex-exceptional items tax rate of 32%

Unlike Star’s 3QFY10 core net profit, MPR’s 3QFY10 core net profit was sequentially driven higher by TV adex which expanded 51% q-o-q. We understand that MPR reduced its discounting rate by three percentage points (ppts) q-o-q to 64% to take advantage of improving consumer and thus, adex sentiment. This also explained Ebitda margins improving by three ppt q-o-q to 25%.

3QFY10 core net profit was higher y-o-y, not only due to adex growth but maiden contributions from NSTP and Kurnia Outdoor. New media losses expanded six fold y-o-y likely due to the launch of TonTon but was more than made up for by TV, radio and outdoor which all recorded y-o-y growth. 9MFY10 core net profit was of course higher y-o-y for the same reasons. MPR also announced that it is revising its dividend policy from 25% to 50% net dividend payout ratio (DPR) to 25% to 75% net DPR effective this year. Going forward, dividends will be paid twice a year. To this end, it announced a single-tier interim dividend of four sen and another is expected to be announced at year-end. Assuming 75% net DPR, investors can expect another six sen net dividend per share or 3% net dividend yield at year-end.

We leave our earnings estimate unchanged. 4QFY10 will likely be a slightly weaker quarter due to the lack of adex friendly events. The last major adex friendly event was Hari Raya Aidifiltri in September or end 3QFY10. Our RM2.72 target price is based on 18 times one-year forward PER, the historical average. We continue to like MPR for its earnings outperformance and now its potential to pay more dividends. - ECM Libra Investment Research