Media Prima - BUY - 29 Aug 2008

Media Prima - Higher-than-expected costs incurred (Results Note)



Price: RM1.60

Target Price: RM2.30

Recommendation: BUY



· Below expectations. 1H08 recurring net profit (excluding RM5.5m VSS cost, RM2.4m gain on disposal of building owned by UPD and RM1.8m gain on disposal of Malay Mail) of RM49.4m accounted 34.9% and 30.0% of consensus and our previous estimates, respectively, impacted mainly by higher-than-expected content costs, A&P spending and maintenance cost.

· YoY, 1H08 revenue grew by 27.9% to RM358.1m driven mainly by: 1) higher revenue recorded by TV (+20.4%) and Radio Networks (+52.3%); 2) strong advertising demand from Euro 2008 (which also underpinned 2Q08 18.8% YoY higher revenue to RM198.5m); and 3) a full 6 months consolidation of the Outdoor division's result against 3 months in 1H07. Sequentially, 1H08 net profit increased by 42.3% to RM47.8m which was also driven partially by the stronger 2Q08 performance from the NSTP.

· QoQ, 2Q08 net profit registered a significant 80% increase mainly on the back of strong growth in advertising revenue led by the NSTP (advertising revenue grew about 4-5% QoQ mainly from Harian Metro). The lower effective tax rate of 17.9% (1Q08: 24.1%) due to utilisation of tax relief from loss-making subsidiaries also attributed to the strong net growth.

· We adjust FY08 and FY09 net earnings lower by 19.0% to RM132.6m and RM148.5m, respectively. Higher-than-expected content costs incurred by the Euro 2008 and local and Chinese content for NTV 7, A&P expenditure and maintenance cost outstripped our earlier assumption of a stronger 2Q08 net earnings. Cue of a lower ADEX growth in 2H08 and aggressive new channels roll-out by Astro have further prompted us to revise lower our earnings.

· Maintain BUY with lower target price of RM2.30 based on unchanged PER of 15x to our revised FY08 EPS of 15.4 sen. Current share price looks compelling after the recent sharp fall of 40.7% YTD, trading at 10x and 9x of FY08 and FY09 PER, respectively. Moreover, its dividend yield of around 7-8% is attractive.