Maybank Research downgrades Media Prima to Sell

Published: Thursday September 19, 2013 MYT 12:37:00 PM 

Updated: Thursday September 19, 2013 MYT 12:39:51 PM

KUALA LUMPUR: Maybank KE Research is downgrading its rating of Media Prima to Sell from Hold, saying the recent fuel price hike and further subsidy rationalisations will likely have a negative impact on earnings outlook.

It has cut its earnings estimate for the media group by 7-12% and lowered FY14F price-earnings ratio multiple to 13 times, from 14 times previously.

Fair valuation is now set at RM2.40, from RM2.90.

“We note that major subsidy rationalisations in the past have negatively impactedMedia Prima’s adex (advertising expenditure) growth. Still fresh in our mind is the 78 sen/litre fuel price hike and 24% electricity tariff hike in June 2008 that sent its TV adex falling 9% year-on-year in 3Q08,” Maybank Research said.

It believes the recent 20sen fuel price hike will negatively impact MPR’s adex growth as advertisers cut their advertising and promotional budgets to compensate for higher fuel prices.

It said with the Government being committed to reducing the budget deficit, there could be further reviews on subsidies on such things as essential food items, gas and electricity. The GST, scheduled for implementation in 2015, could further dent adex sentiment.

“Media Prima’s year-to-date share price performance has been good, as it up 19% while all its media peers under our coverage are down 1-6%. Therein also lies the threat that its share price will be more vulnerable to a sell-down in the event that subsidy rationalisation and the GST implementation cut its adex growth by more than we expect,” it added.

“We have observed that Media Prima traded at a discount to the FBM KLCI 30 during major subsidy rationalisations and economic uncertainties. Actually, subsidy rationalisations triggered these discounts in the past on expectations of weak adex,” it explained.

Maybank Research said after the 78sen fuel price and 12% electricity tariff hikes in 2008 and during the global financial crisis, respectively, Media Prima traded at an average 2.0 times PER discount to the FBM KLCI 30. After the 7% electricity tariff hike in 2011 and during the Eurozone Sovereign Debt Crisis, it traded at an average 1.5 times discount to the FBM KLCI 30.

As such, the research house believes Media Prima could once again trade at a discount to the FBM KLCI 30.

“Given its less-than-sanguine adex and, hence, earnings outlook, we lower our target multiple to 13 times FY14F PER, or at a 1.9x discount to the historical average FBM KLCI 30 1-year forward PER since 2001 of 14.9x, to arrive at our revised target price of RM2.40.

“We reiterate our view that there may be more downside risk to our earnings estimates and, therefore, to our target price due to subsidy rationalisation/GST implementation,” it concluded.