January 21, 2011

MEDIA - Raising ad rates for TV and print

Stock Name: MEDIA
Company Name: MEDIA PRIMA BHD
Research House: RHB

Media Prima Bhd
(Jan 21, RM2.66)
Maintain outperform, raise fair value to RM3.20 (from RM2.82)
: According to Nielsen Media Research (NMR), 4Q10 advertising expenditure (adex) for Media Prima's TV channels ended on a high note.

Adex for the TV segment jumped 9.3% quarter-on-quarter, thanks to NTV7 (+19.5% q-o-q) and 8TV (+16.9% q-o-q).

For the print segment, however, 4Q10 adex fell 11.3% q-o-q. This was not too surprising considering that 4Q tends to be a seasonally slower quarter for the Malay dailies post the Merdeka celebrations and Hari Raya festivities.

We understand from management that the company is raising its prime time ad rates for all its TV channels (TV3, 8TV, NTV7 and TV9) by 17% to 43%. TV9's ad rates will be raised the most due to a significantly lower base.

In addition, management is also looking to raise the ad rates for the fringe time slots for TV3 by about 40%, in order to lower the ad-to-content ratio to a more optimal level as this would help to reduce viewership leakages from excessive ad volume. The new ad rates will be effective January 2011.

For its print business, management is also raising the ad rates by approximately 6% to 21%. Despite the rise in ad rates for Harian Metro by about 15% to 21%, it is still about 14% to 15% than The Star's ad rates, even though HM's circulation has grown to 420,000 copies a day (from 340,000 in 2009). The circulation of The Star, on the other hand, is currently declining.

The risks include: (i) weaker than expected adex growth; (ii) high discounting activities; and (iii) high foreign shareholding level (about 31.7%).

We have marginally raised our FY10 revenue assumption for Media Prima's TV segment by 1.1% following the strong adex performance for its TV channels in 4Q10.

At the same time, we have revised our FY11 and FY12 revenue assumptions by 1.7% and 2.2% respectively. Thanks to its fixed cost structure, our FY10/12 earnings forecasts have been raised by 7.2% to 8.8%.

Given the stronger earnings outlook following the revision of our forecasts, we have revised our target price-earnings ratio (PER) to 17 times from 16 times.

Our revised target PER is based on one standard deviation above the stock's five-year average PER. Together with the earnings revision, we have raised our fair value to RM3.20 (from RM2.82).

There could be further potential upside to the current share price should adex growth (especially the TV segment) turn out to be stronger than expected and/or realisation of synergies for the recent NSTP deal. We reiterate our 'outperform' call on the stock. ' RHB Research Institute, Jan 21


This article appeared in The Edge Financial Daily, January 24, 2011.

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