Media Sector - Adex optimism post GE OVERWEIGHT

- With the conclusion of the 13th General Election and the Barison
National retained as the government, we see no structural change within
the media industry. We are in fact positive on this as the
uncertainties and election overhang are finally over. More importantly,
the fundamentals of the media sector continue to be intact. The
domination of the media space is to likely remain with the handful of
players due to the high barriers of entry.

- Going forward, we view that 2HFY13 adex is poised for a recovery
as confidence is restored, given the end of the elections. An improved
adex sentiment is further supported by a seasonal trend – massive sales
period and festive seasons towards the year-end – prompting more
aggressive advertising compared to 1HFY13. Advertisers’ budgets tend to
be exhausted towards the year-end. Industry adex is projected to grow
by 5%-8% this year.

- 1QFY13 adex saw growth of 19%, as reported by Nielson Media
Research. The growth is believed to have been largely attributed to
spending by political parties for the General Election, which have
partially offset the seasonally lacklustre 1QFY13 adex, in our view.
Nonetheless, non-GLC advertisers are still holding back on their
advertising budget pre-General Election, based on our checks with the
industry media players.

- FTA TV, which is dominated by Media Prima, recorded a growth of
15% YoY, offsetting print media, which shrank marginally of 0.01% YoY.
In addition, Astro recorded a phenomenal growth of 70% YoY. We
understand this huge jump was caused by additional Astro TV channels
monitored by Nielson. A relatively good set of 1QFY13 result is
expected from Media Prima, which is scheduled for release on 8 May 2013.

- On a side note, print media players have benefited from improved
margins arising from softening of newsprint prices, which have trended
downwards, hovering at circa USD600/MT currently. Furthermore, an
over-supply of newsprint inventory by paper mills and closing of some
inefficient paper mills have further led to Malaysia as an anti-dumping
ground. Nevertheless, we reckon media players will continue to stock up
on newsprint on a quarterly basis, at least, to take advantage of the
lower prices.

- No change to our earnings estimates for now. We are OVERWEIGHT
on the sector. Our BUYs continue to be Media Prima (BUY, FV:
2.90/share), Media Chinese (BUY, RM1.45/share) and Star Publications
(BUY, RM3.10/share) premised on:- (1) Attractive dividend yields
between 5%-8% (excluding special dividends), with upside potential
given strong net cash position and after-tax free cash flow yield; and
(2) Stronger adex growth prospects supported by a recovery in adex,
particularly in 2HFY13.

- Our HOLD call is only for Astro Malaysia Holdings (HOLD,
RM2.89/share), given the yet-to-stabilise capital expenditure cycle
which will continue to impact its earnings trajectory in the near term.
Free cash flow is envisaged to build up beyond FY15F, in our view.

Source: AmeSecurities