Period

3Q15/9M15

Actual vs. Expectations

MEDIA’s 9M15 core PATAMI of RM107m (+2% YoY) came in above our expectation (at 75.6%) but largely within the street’s (at 73.4%) of full-year estimates. The positive deviation on our end was mainly due to lowerthan- expected direct costs.

Historically, the 9M results normally made up c.64%-70% of the full-year earnings, based on the past three years. Nevertheless, in view of the current challenging macro outlook, MEDIA’s operational environment is expected to remain challenging for the remainder of the year.

Dividends

An interim single tier dividend of 2.0 sen (vs. 3Q14: 3.0 sen) was declared with an ex-date set on 8 December, bringing its 9M15 DPS to 5.0 sen (9M14: 6.0 sen). The 3Q15 dividend was slightly below our expectation as we expect MEDIA to maintain DPS at a similar level to 3Q14. Correspondingly, we have lowered our full-year DPS to 10.0 sen (from 11.0 sen previously) which implied a DPR of 75% and net yield of 7.5%. Key Result

Highlights

YoY, 9H15 net revenue came in lower at RM1.06b (-5%), no thanks to the weaker performance in all its key segments as a result of the subdued market sentiment. Despite the single-digit drop in revenue, the group’s PATAMI managed to climb marginally by 2% to RM107m on the back of production cost savings & efficiencies.

QoQ, revenue stayed flat while EBIT improved by 8% on the back of lower direct costs from television content and newsprint consumption.

Outlook

The adex sentiment is expected to remain weak, in view of the current rising cost of living post the GST implementation. Furthermore, the weakening of MYR coupled with the current market uncertainties are expected to continue sapping advertisers’ appetite over the near-term.

Moving forward, we understand that MEDIA is aiming to continue to focus on: (i) growing its non-traditional revenue (i.e. home and online shopping) while maintaining its leading viewership positions through high quality contents and new programmes introduction, (ii) optimizing manpower and increase staff productivity, (iii) expanding its multi-platform content production for market beyond its TV network.

Change to Forecasts

We have raised our FY15E/FY16E NPs by 4.4%/5.2% after lowering our direct costs assumption.

Rating

Maintain MARKET PERFORM despite the potential total return is more than 10% as the authority has yet to complete the review of transmission costs' structure (under the DTT service) which suggests potential earnings risk should the outcome is not in favour of MEDIA.

Valuation

Our TP raised to RM1.48 (from RM1.16) based on higher targeted FY16E PER of 10.9x, representing a -0.5 SD below the 6-year mean (vs. 8.9x, -1SD previously). We believe the negative sentiment related to the transmission costs structure (under the DTT service) has been largely priced-in even though the authority has yet to make any decision. Thus, with the improvement of its production cost coupled with early signs of operational efficiency, it warrants a slightly higher valuation.

Risks to Our Call

Downside risk – failure to renegotiate the transmission cost under the DTT service.

Source: Kenanga Research - 20 Nov 2015