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Stockwatch- Media Prima BHD (Malaysia), Buys bear fruit

Buys bear fruit at Media Prima
4 Sep 2006, The Edge
By Lim Ai Leen

Swallowing two television channels and two radio stations within 12 months is no mean feat, yet Media Prima Bhd has managed to do that and cough up higher earnings as well. "Things are progressing, we're sure we're on track to achieve our aggressive growth targets that we have set ourselves," says Abdul Rahman Ahmad, Media Prima's group managing director and CEO.

Last Wednesday, the group posted revenue of RM232.7 million for the six months ended June 30, 2006, a 35% growth from the RM172 million earned for the same period last year. Net profits (excluding an exceptional item) grew 29% to RM18.37 million over the same period. However, taking into account the exceptional item — a RM12.5 million share of cost incurred for a voluntary separation scheme at 43% associate New Straits Times Press (M) Bhd (NSTP) — net profit only came in at RM9.5 million.

This performance places the group firmly on the growth path, three years after its debt restructuring plan was implemented. And it looks like better numbers are in store as Media Prima's new acquisitions start to break even and it consolidates its monopoly position in the free-to-air (FTA) TV sector.

Media Prima owns 100% of TV3, its flagship mass-market channel, and recent additions NTV7 and TV9. It also owns 80% of 8TV, which targets the urban youth market. The government owns the remaining FTA stations, RTM 1 and RTM2.

"TV earnings will be the earnings driver in the short term," observes Rahman. He notes however that radio will start contributing strongly in the future, though this will be small relative to the entire group. Media Prima owns Fly FM and Hot FM, both bought last year.

Some media analysts, however, have been sceptical of the group's ability to command monopoly ad prices from the time Media Prima embarked on its aggressive shopping spree. These critics did not like the fact that despite TV3's already dominant position with 55% of adex (advertising expenditure) share, the group still had to buy up its competitors in order to stamp out rampant discounting and up its ad revenue. Media Prima's TV stations now control 80% of ad spend amongst the FTA networks.

Rahman concedes that one of the reasons for consolidating was to better manage discounting, which stood at between 55% and 60% of reported industry ad rates. But he doesn't believe that the focus should be on rates per se, as evidenced by the group's earnings.

"... our strategy internally is not rate-focused, it's revenue-focused. To us it's more important for us to grow our revenue faster and larger, rather than being very focused on what level of rates are in a particular slot. On that score, I think we've been very successful in terms of going to advertisers and agencies to provide them better value. With that, they're willing to commit a higher level of revenue to us and I think that the revenue focus strategy is working very well," he explains.

Analysts were also concerned that stubborn advertisers could run to other media like print and pay TV operator Astro if Media Prima started hiking up rates. Unlike other countries, Malaysia's print sector is stronger than TV, commanding some 60% of total adex, while TV garners just under 30%. Meanwhile, Astro is more dependent on subscriptions, not ads, for its revenue, and can thus offer attractive packages to advertisers. But Rahman believes he has his bases covered.

First off, the group is an integrated media company with businesses in TV, radio and print. He explains: "We admit we have quite a big share of the TV market but we no longer look at the adex market as purely TV. We look at the adex market as a total and while we may have large share of the TV pie, TV adex in Malaysia is one of the lowest in the region as a proportion of total adex."

Hence the group embarked on its TV-print cross-media bundling exercise four months ago. "It's led by the print, NSTP, side because the market we were targeting are those more on the print side — automotive, consumer, electronics and corporate profiling market. I think it's been very encouraging and we hope to do more and expand it further going forward," says Rahman.

Also, latest figures indicate that advertisers may be migrating from print to TV, albeit very slowly. "Structurally if you look at most recent Nielsen data, newspaper growth declined by 3% for the first six months. Of course, Nielsen figures are to a certain extent influenced by discounting, but TV adex did grow by 2% to 5%," he points out.

Competing against the likes of Astro however requires a different and costlier strategy —pending on brand-building and content or programmes to attract viewers. Media Prima spends about RM200 million yearly on content, and is expected to announce a higher content budget this Friday when it unveils its schedule to advertisers and media buyers.

Potential upside
All these efforts, and their bottom line results, seem to have assuaged the analysts somewhat. Six of the seven analysts listed on Bloomberg have "buy" calls on Media Prima stock, with target prices in the RM2.20-range. The counter ended at RM1.72 last Wednesday.

More earnings should flow to the bottom line once TV9 and NTV7 start showing profits, as soon as this year for NTV7 if it hits its cost saving target of RM30 million. The standard gestation period for new TV stations to be up and running and profitable is two years, and Media Prima has a track record of doing it faster. "8TV did it within 18 months, ahead of our expectations," declares Rahman.

He is also proud of the fact that Chicago-based foreign fund, Harris Associates LP, has been accumulating shares in the company and holds 70.5 million shares or a direct interest of 9.5%as at July 21. He points out that Harris is a long-term value investor, "not a hedge fund that goes in and out".

"Our group is more appreciated by foreign fund managers than local investment community. We are one of the few corporates which foreign fund managers find very appealing. They benchmark us against other media companies internationally in HK, Australia, Indonesia. There are not many media companies they believe are well-run, corporate governance-wise and in terms of strong future growth value," he says.

He believes that a key attraction is the group's ability to generate cash flow, or Ebitda (earnings before interest, tax, depreciation and amortisation). He says: "When I came in, our Ebitda was roughly RM50 million. Last year we closed at RM107 million, which is doubling of Ebitda in three years ... we hope to deliver 15% growth every year for the next three years. We've been exceeding that by far every year and hope to continue to do that."

Investors are also promised a dividend pay out ratio of 20% for the next three years, which should grow up to 50% thereafter. Now that this group has pretty much bought up the media assets up for sale locally, it appears that regional expansion is the next step.

Rahman responds: "We are always looking for investment opportunities; we are interested in anything that adds shareholder value. But at the moment our focus is to make sure all our acquisitions are digested, to create value and show the value."


Media Prima 2Q net profit soars 127% to RM16m
By Tamimi Omar, The Edge 30 Aug 2006

Media Prima Bhd's net profit jumped 127% to RM16.41 million for its second quarter (2Q) ended June 30, 2006 from RM7.23 million a year earlier on the back of strong performances from its television networks operations.

Revenue rose 41.31% year-on-year (y-o-y) to RM132.817 million from RM93.98 million previously.

“TV3, the group flagship network, maintained its leadership position in terms of advertising revenue and viewership share, while 8TV continued its exceptional revenue growth,” Media Prima group managing director and chief executive officer Abdul Rahman Ahmad said.
According to AC Nielsen, Media Prima, which has four TV networks, TV3, NTV7, 8TV and Ch-9, maintained its leadership position with 48% share of TV viewership against 38% in the previous corresponding period.

However for the first six months, Media Prima’s net profit fell 23.47% to RM9.47 million from RM12.38 million, while revenue rose to RM232.69 million from RM171.97 million.
The lower net profit was due to the one-off exceptional cost from the voluntary separation scheme (VSS) undertaken by the group’s associate company, The New Straits Times Press Bhd, in the first quarter this year, which was partly offset by writeback of long-standing accruals in certain subsidiaries.

Reviewing Media Prima’s second quarter results at a media conference in Petaling Jaya yesterday, he said the group was on track to surpass its previous target of 20% growth on both the bottom line and revenue this year.

“We announced last year that we wanted to maintain the level of growth that we have been delivering, which is a 20% growth target in terms of revenue as well as bottom line in the last three years.”

“I think the results today have shown that not only have we met that target but on track to exceed it,” Abdul Rahman said.

He said Media Prima would also unveil its 2007 content programme investment next week.
“We mentioned last year that we are going to spend between RM170 million and RM200 million of investment in content, I think we are on track to invest in that amount and hope to be able to increase it for next year,” he said.

posted by gsg @ 12:26 PM