PP 7767/09/2010(025354)

RHB Research

Malaysia
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts /Bri e fi ng N o te
24 August 2010
MARKET DATELINE

Media Prima Share Price

Fair Value
:
:
RM2.14
RM2.57
2Q10 Earnings Aided By Strong Recovery In Adex Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (MEDIA; Code: 4502) Bloomberg: MPR MK

Net Core EPS Net
FYE Turnover profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE GDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009 744.0 194.8 18.2 6.9 -52.0 31.0 0.0 3.2 0.46 9.8 3.9
2010f 1,465.5 141.0 13.2 13.2 90.9 16.2 15.0 2.8 0.46 14.1 5.2
2011f 1,545.0 175.6 16.4 16.4 24.5 13.0 17.0 2.4 0.30 16.0 5.9
2012f 1,607.3 210.5 19.7 19.7 19.9 10.9 20.0 2.0 0.14 17.3 6.5
# Excludes exceptional items ^ Excludes special dividends
Main Market Listing / Non-Trustee Stock / Not Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

RHBRI Vs. Consensus

♦ Below expectations. Media Prima’s 2Q10 core net profit of RM36.7m Above
(+92.1% yoy; +17.6% qoq) was below our and consensus expectations In Line
with 1H10 core net profit of RM59.3m (vs. RM8.0m in 2Q09) accounting Below
for 34% and 38% of our and consensus expectations respectively. We
believe the variances were largely due to: 1) lower-than-expected 6M’s Issued Capital (m shares) 996.3
EBITDA margin of 22.4% vs. our full-year EBITDA margin of 25%; and 2) Market Cap (RMm) 2,132.1
higher-than-expected 6M’s effective tax rate of 28.6%, against our full- Daily Trading Vol (m shs) 1.1
year effective tax rate of 25%. As expected, no dividend was declared 52wk Price Range (RM) 1.34-2.25
during the quarter. Major Shareholders: (%)
EPF 24.2
♦ Results highlights. Qoq, revenue grew 22% qoq. This was partly due to Gabungan Kesturi 12.6
seasonality given that 1Q is typically the slowest quarter. All segments Harris 5.7
reported growth with TV reporting the strongest growth of 26% qoq as the
average discount narrowed to 67.3% in 2Q10 against 69.3% in 1Q10. The FYE Dec FY10 FY11 FY12
Radio and Outdoor segments also recorded stronger revenue of 17.2% and EPS chg (%) (19.2) (8.7) (5.2)

14.1% qoq respectively. Coupled with higher associate profit, offset by a Var to Cons (%) (12.1) (3.5) (1.6)

higher effective tax rate of 36.6% (vs. 1Q10:20.1%), 2Q10 core earnings
PE Band Chart
grew 17.6% qoq.

♦ NSTP – growth momentum continues. Meanwhile, NSTP reported 1H10 PER

PER
=
=
22x
17x
core net profit of RM33.5m (against RM7.7m in 1H09) as revenue rose PER = 12x
12% yoy due to a combination of stronger advertising (+15% yoy) and PER = 7x

circulation revenues (+10% yoy). The increase in earnings was further

aided by lower newsprint cost (lower operating expenses: -16% yoy).
Separately, Media Prima has extended its voluntary general offer for the
remaining shares of NSTP to Sep 14. Media Prima currently holds 97% of
NSTP. The remaining NSTP shareholders will be given an exit offer of 1.2 Relative Performance To FBM KLCI
Media Prima Shares and 0.2 Media Prima warrants for every 1 NSTP share
held. The delisting of NSTP is expected to be completed by end Sep ‘10. Media Prima

♦ Risks. The risks include: 1) weaker-than-expected adex growth; 2) high

discounting activities; and 3) high foreign shareholding level (~31.7%).

♦ Forecasts. We have lowered our FY10-12 earnings forecasts by 5.2- FBM KLCI
19.2% largely to reflect lower EBITDA margins and higher effective tax
rate assumption.

♦ Investment case. Our indicative fair value is lowered to RM2.57 (from

RM2.80) (fully diluted), which is based on unchanged target FY11 PER of
15x. Our Outperform call on the stock, however, remains unchanged.
David Chong, CFA
(603) 9280 2186
Please read important disclosures at the end of this report. david.chong@rhb.com.my
Highlights From Analyst Briefing

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 24 August 2010

♦ Adex growth to continue in 3Q10. Management was optimistic that adex growth momentum should continue
in 3Q10 due to the upcoming festive season ahead (e.g. Merdeka celebration and Hari Raya festival). The
momentum, however, could slow down in 4Q10 (vs. 3Q10) as a result of a higher base effect. Also, given the
strong start to the global economic recovery in 1HFY10, management believes the economy would likely grow at
a more moderate pace by 4Q10, thus resulting in slower adex growth in 4Q10.

♦ Delisting of NSTP by end Sep ‘10. Media Prima has extended its voluntary general offer for the remaining
shares of NSTP to Sep 14. Media Prima currently holds 97% of NSTP, which surpassed the 70% target set by
Media Prima initially. The remaining NSTP shareholders will be given an exit offer of 1.2 Media Prima Shares and
0.2 Media Prima warrants for every 1 NSTP share held. The delisting and exit offset is the last mile in Media
Prima’s privatisation exercise of NSTP and is expected to be completed by end Sep ‘10.

♦ Tonton- new video portal launched by Media Prima. Earlier this month, Media Prima launched a new video
portal called “Tonton”. Tonton is another new platform for Media Prima to broadcast its content given that people
are increasingly watching TV via online. The portal has all the requisite customisation features, which is deemed
to be intelligent by tailoring to the individual user’s preference. Currently, content is mainly from Media Prima but
the company will be adding more content from third parties. The company is targeting two million registered
users and added that the response is expected to be good given that this new platform gives access to users of
Blackberry, i-Phone and personal computers. While content viewing on Tonton is free for now, exclusive and
premium content could carry some charges at a later date. To date, Media Prima’s new media group is loss-
making but with the launch of Tonton, management is optimistic that it could break even in the next 12-18
months.

Risks

♦ Risks. The risks include: 1) weaker-than-expected adex growth; 2) high discounting activates; and 3) higher
foreign shareholding level (~31.7%).

Forecasts

♦ Forecasts revised downwards by 5.2-19.2%. We have revised our FY10-12 EBITDA assumptions to 23.0-
25.5% (from 25.0-26.2%) respectively to reflect the lower-than-expected EBITDA achieved by Media Prima thus
far. We have also revised our FY10 effective tax rate to 29% (from 25%), but maintained our FY11 and FY12
effective tax rate assumption of 25% p.a. respectively. As a result, our FY10-12 earnings forecasts have been
revised downwards by 5.2-19.2%.

Valuations and Recommendation

♦ Outperform recommendation retained. Our indicative fair value is lowered to RM2.57 (from RM2.80) (fully
diluted), which is based on unchanged target FY11 PER of 15x. Media Prima is, in our view, well poised to benefit
from the faster recovery in TV adex. Aside from improving fundamentals, further potential catalysts we see ahead
for the enlarged entity include the potential realisation of merger synergies and a rerating in valuations. Thus, we
are reiterating our Outperform call on the stock.

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 24 August 2010

Table 2. Earnings Review

FYE Dec QoQ YoY 6M 6M YoY
(RMm) 2Q09 1Q10* 2Q10* (%) (%) FY09 FY10 (%) Comments
177.1 323.0 394.0 22.0 >100 317.9 717.0 >100
Revenue Excluding NSTP, revenue was higher yoy
due to stronger ad revenue reflecting the
recovery in macroeconomic conditions.

EBITDA 36.3 72.7 88.2 21.3 >100 46.2 160.9 >100 Sharper yoy increase (vis-à-vis revenue)
largely reflects Media Prima’s high fixed
cost structure
Dep & amort
(11.9) (24.0) (26.6) 10.6 >100 (23.5) (50.6) >100
EBIT 24.3 48.7 61.6 26.6 >100 22.7 110.3 >100
Interest exp (5.9) (6.9) (9.3) 36.1 59.5 (11.5) (16.2) 41.3 Total debt as at 2Q10 was RM637.0m,
which is inclusive of NSTP’s debt of
RM86.3m that Media Prima now
consolidates (2Q09: RM422.3m; 1Q10:
RM658.6m).
Associates 4.6 (0.7) 5.3 >100 14.9 3.3 4.6 38.5
EI 0.0 17.5 5.4 (69.2) nm 0.0 22.9 nm 2Q10 EI relates to the gain of disposal of
land for NSTP while 1Q EI relates to the
negative goodwill as a result of additional
acquisition of majority stake in NSTP.
Pre-tax profit 23.9 58.7 62.9 7.3 >100 14.6 121.6 >100
Tax (6.0) (11.8) (23.0) 95.2 >100 (6.5) (34.8) >100
Profit from
continuing
operations 18.0 46.9 39.9 (14.9) >100 8.0 86.8 >100
Loss from sub (13.6) 0.0 0.0 nm (100.0) (22.8) 0.0 (100.0) With the disposal of MPI completed in
held for sale FY09, Media Prima would not need to
absorb any further losses from FY10.
Gain on disposal
of sub held for
sale 0.0 0.0 0.0 nm nm 0.0 0.0 nm
Minority interest 4.1 (1.3) (3.3) >100 >100 0.0 (4.6) nm
Reported
PATAMI 8.5 45.6 36.7 (19.6) >100 (14.8) 82.2 >100
Normalised 18.0 29.3 34.5 17.6 92.1 8.0 59.3 >100 6MFY10 profit from continuing operations,
PATAMI adjusted for negative goodwill and gain of
disposal of land.

Margins (%)
EBITDA 20.5 22.5 22.4 14.5 22.4 20.5
EBIT 13.7 15.1 15.6 7.1 15.4 13.7
Pre-tax 13.5 18.2 16.0 4.6 17.0 13.5
Effective tax 25.0 20.1 36.6 44.9 28.6 25.0 2Q10 effective tax rate above statutory
rate tax rate due to certain non-allowable
expenses under tax purposes.
Recurring net
profit 10.1 9.1 8.8 2.5 8.3 10.1

* 1Q10 and 2Q10 figures reflect a full quarter’s consolidation of NSTP and hence, qoq and yoy numbers are not strictly comparable.
Source: Company Data, RHBRI

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 24 August 2010

Table 3 : Earnings Forecasts Table 4 : Forecast Assumptions

FYE Dec (RMm) FY09a FY10f FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 744.0 1,465.5 1,545.0 1,607.3 Adex revenue growth (%)

Turnover growth (%) 39.2 97.0 5.4 4.0 - TV3 18.9 7.3 5.2
- NTV7 24.3 9.2 7.0
EBITDA 118.2 336.8 370.7 409.7 - 8TV 22.9 9.0 6.8
EBITDA margin (%) 15.9 23.0 24.0 25.5 - TV9 23.4 8.9 3.0
- Radio 3.3 10.0 5.0
Dep & amort (50.4) (100.7) (102.7) (104.8) - Outdoor 25.5 5.0 3.0
- NSTP 18.9 7.3 5.2
EBIT 67.8 236.1 268.0 304.9
EBIT margin (%) 9.1 16.1 17.3 19.0 Newsprint cost (US$/tonne) 580 625 625
Net Interest (24.4) (31.5) (26.1) (14.0)
Associates 16.5 7.0 5.0 3.0
Negative goodwill 216.1 0.0 0.0 0.0

Pretax Profit 275.8 211.6 246.8 293.8

Tax (24.0) (61.4) (61.7) (73.5)
Loss from sub held
(95.3) 0.0 0.0 0.0
for sale
Minorities 0.0 (9.2) (9.6) (9.8)
Net Profit 194.8 141.0 175.6 210.5
Core Net Profit 73.8 141.0 175.6 210.5
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
(previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher
risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

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 24 August 2010

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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