PP 7767/09/2010(025354)

Malaysia
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Se ctor Up dat e
23 September 2010
MARKET DATELINE

Media Recom : Overweight

(Maintained)
Aug ’10 Print And TV Ad Spend Up 8.7% YoY

Table 1 : Media Sector Valuations

Core Core Net
Fair EPS EPS GWTH PER Gearing GDY
FYE Price value (sen) (%) (x) (x) (%) Rec
(RM) (RM) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12 FY11
Star Dec 3.80 4.34 27.7 28.2 4.4 1.8 13.7 13.5 net cash net cash 6.1 OP
Media Prima Dec 2.10 2.75 16.5 19.4 21.3 17.6 12.7 10.8 0.4 0.6 5.4 OP
MCIL^ Mar 0.89 1.21 9.5 9.9 3.1 3.7 9.3 9.0 net cash net cash 6.8 OP
Sector Average 8.9 7.5 12.1 11.2
^FY10 & 11 refer to FY11 & FY12

♦ Aug’s adex for print and TV media grew 8.7% yoy. According to Chart 1: Relative Performance To
FBM KLCI
Nielsen Media Research (NMR), Aug’s gross ad spend for print and TV
media rose 8.7% yoy with both print and TV media reporting yoy growth
MCIL
of 11.3% and 5.7% respectively.

♦ Print media – Malay dailies took the lead. For the print media
segment, Aug’s adex growth was led by the Malay dailies, where adex Media Prima
grew 22.2% yoy led by Berita Harian (+26.5% yoy) and Harian Metro
(+24.1% yoy) largely due to Hari Raya festival. This was followed by the FBM KLCI
English dailies, where adex grew 7.0% yoy led by NST (+13.4% yoy), Star
while Star recorded a modest adex growth of 2.6% yoy. As for the
Chinese dailies, adex grew 4.5%, thanks to China Press (+20.1 yoy), but
was offset by a weaker adex for Nanyang (-13.3% yoy).

♦ TV gross adex – slowest monthly adex growth thus far this year.
Aug’s TV growth slowed to 5.7% yoy (Jul: +20.7% yoy), the slowest
monthly adex growth thus far this year. This was mainly due to slower
adex growth for TV3, which only grew 0.7% yoy. Collectively, Media
Prima’s channels posted yoy growth of 4.2% led by 8TV (+15.5% yoy).

♦ Adex outlook. Although YTD, adex growth stood at 20.3%, we expect

PER = 12x
the growth rate to slow down in 2H10. Firstly, following the strong start
to the global economic recovery in 1H10, we believe the economy will PER = 11x
likely grow at a more moderate pace in 2H10, although we do not expect
the global economy to fall into a double dip recession. Secondly, adex will PER = 10x
now be coming from a higher base. Nevertheless, adex growth should
continue to remain healthy, supported by sporting events like the
Commonwealth Games and upcoming festive season.

♦ Risks. The risks include: 1) weaker-than-expected consumer spending

and demand (and hence, adex), which could be due to a slower-than-
abc
expected recovery in the global economy, among others; 2) higher-than-
expected newsprint/content costs; and 3) weaker-than-expected RM (vs.
the US$). KLCI

♦ Forecasts. No change to our earnings forecasts for now.

♦ Investment case. We reiterate our Outperform calls on MCIL, Media

Prima and Star and maintain our Overweight stance on the sector.
David Chong, CFA
(603) 9280 2179
Please read important disclosures at the end of this report.
david.chong@rhb.com.my

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Aug 2010 TV and Print Adex

♦ Aug ’10 print and TV adex grew 8.7% yoy. According to Nielsen Media Research (NMR), Aug’s gross
advertising expenditure (adex) for print and TV media rose 8.7% yoy while mom, adex grew 4.8%. Aug’s yoy
growth was led by the print segment (+11.3% yoy; +7.9% mom) while the TV media reported a slower growth
of 5.7% yoy (flat mom).

Ad spending grew 20.3% YTD as adex for TV and print media grew 24.1% yoy and 17.5% yoy respectively. Once
again, we believe this strong yoy growth was mainly due to the low base effect as a result of the weak economic
conditions a year ago, coupled with improving economic conditions and sporting events such as FIFA World Cup
and Thomas/Uber Cup.

♦ Print media – Malay dailies took the lead. Within the print media segment, Aug’s growth was due to the
Malay dailies chalking up adex growth of 22.2% yoy (+23.9% mom), the strongest monthly growth for the
segment thus far this year. Berita Harian recorded the highest yoy growth of 26.5% yoy (+27.6% mom), while
both Harian Metro and Utusan continued to impress with gross adex jumping 24.1% yoy and 18.6% yoy
respectively largely due to the Hari Raya festival. This was followed by the English dailies, which grew 7.0% yoy
(+3.5% mom) with NST’s adex leading the adex growth (+13.4% yoy), which we believe was due to Merdeka
celebrations last month. Star recorded a smaller growth of 2.6% yoy. Finally, for the Chinese dailies, Aug ’10
grew 4.5% yoy. For MCIL newspapers, China Press recorded the strongest yoy growth of 20.1% (-2.3% mom),
followed by Guang Ming (+5.8% yoy; -2.0% mom) and Sin Chew (1.8% yoy; flat mom). This was offset by the
weaker yoy adex for Nanyang, which fell 13.3% yoy (-28.8% mom).

YTD (Jan-Aug), MCIL’s newspapers posted the strongest performance (+23.3% yoy) with all four dailies, i.e.
China Press (+44.5% yoy), Guan Ming (+21.8% yoy), Sin Chew Daily (+14.0% yoy) and Nanyang (+9.5% yoy),
reporting better numbers. This was followed by Star, where YTD adex grew 22.7% yoy. As for NSTP, YTD adex
grew 14.5% yoy, with all three dailies, i.e. Harian Metro (+26.5% yoy), Berita Harian (+13.5% yoy) and NST
(+4.4% yoy) reported strong numbers.

♦ TV gross adex – slowest monthly adex growth thus far this year. Aug’s TV adex grew by a slower pace of
5.7% yoy (+1.4% mom), the slowest monthly adex growth thus far this year. We believe the slower yoy adex
growth for TV was due to a higher base effect given that the economy had begun to recover from Aug last year.
Nevertheless, all FTA channels still posted stronger yoy numbers with TV2 leading the way as adex grew 20.5%
yoy (-3.7% mom). Collectively, Media Prima’s channels posted yoy growth of 4.2% (+3.6% mom) led by 8TV
(+15.5% yoy; +2.0% mom). YTD, gross adex for Media Prima’s channels was up 21.6% yoy mainly due to 8TV
(+27.6% yoy) and TV9 (+26.5% yoy). TV3’s gross adex also grew 18.1% yoy, which we believe should be
positive for the group given that its discounts are also the lowest among Media Prima’s station (2Q10 discount
factor of 54.6% vs. 76.4-81.6% for other channels). This means that a higher portion of TV3’s gross adex growth
would flow down to bottomline.

Adex Outlook

♦ Adex outlook. While YTD adex growth stood at 20.3% yoy, we expect the growth rate to slow down in 2H10.
Firstly, following the strong economic growth in 1HCY10, we believe the economy will likely grow at a more
moderate pace in 2HCY10 but we do not expect the global economy to fall into a double dip. Secondly, adex will
now be coming from a higher base. Nevertheless, adex growth should continue to remain healthy, supported by
sporting events like the Commonwealth Games and the year-end festivities.

Risks

♦ Risks to our view. The risks include: 1) weaker-than-expected consumer spending and demand (and hence,
adex), which could be due to a slower-than-expected recovery in the global economy, among others; 2) higher-
than-expected newsprint/content costs; and 3) weaker-than-expected RM (vs. the US$).

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Forecasts And Assumptions

♦ MCIL. We have revised up our FY11-13 revenue forecasts for MCIL by 1.8-2.9% to reflect the higher ad revenue
for its Malaysian operations and stronger revenue for its overseas operations. MCIL current newsprint stock is
between 6-8 months at an average cost of US$650/tonne. As such, we have revised up our FY11-13 newsprint
cost assumption to US$650-700/tonne p.a. from US$550-575/tonne. At the same time, we have adjusted our
FY11-13 RM/US$ assumption to RM3.10-3.15/US$ (from RM3.30/US$ p.a. previously). Subsequently, we adjust
our FY11/FY12/FY13 earnings forecasts by -1.5%/+5.3%/+4.0% respectively.

♦ Star. Star is currently carrying 10-11 months of newsprint stock at an average cost of US$650/tonne. As such,
we maintained our FY10 newsprint cost assumption of US$650/tonne but revised our FY11 and FY12 newsprint
cost assumptions to US$675/tonne and US$700/tonne respectively (from US$650/tonne p.a. previously).
Consequently, we have adjusted our FY10-12 RM/US$ assumption to RM3.10-3.15/US$ (from RM3.20-3.50/US$
previously). As such, our FY10 earnings forecast has been raised by 9.0% but our FY11 and FY12 earnings
forecasts have been lowered by 0.3% and 2.4% respectively.

♦ Media Prima. For NSTP, the company is currently carrying 5-6 months of newsprint stock at an average cost of
US$620-640/tonne. Subsequently, we have revised up our FY10-12 newsprint cost assumption to US$620-
700/tonne (in line with the Star and MCIL) from US$580-625/tonne previously. At the same time, we have
adjusted our FY10-12 RM/US$ assumptions to RM3.10-3.15/US$ (from RM3.50/US$ p.a. previously). As a result,
our FY10 and FY11 earnings forecasts for Media Prima have been revised upwards by 3.1% and 0.4% but our
FY12 earnings forecast has been lowered by 1.5% following the higher newsprint cost assumption.

Valuations And Recommendation

♦ Fair value for MCIL is maintained at RM1.21/share. Despite the change in earnings forecast, our fair value
is maintained at RM1.21, which is based on unchanged target CY11 PER of 13x. We reiterate our Outperform
call on the stock.

♦ Maintain Outperform call on Star. We have raised our fair value for Star to RM4.43 (from RM4.20), which is
based on revised target CY11 PER of 16x (from 15x), in line with our target market PER. We maintain our
Outperform call on the stock.

♦ Our top pick remains Media Prima. However, we have raised our fair value for Media Prima to RM2.75 (from
RM2.57), which is based on revised target CY11 PER of 16x (from 15x), in line with our target market PER. We
continue to like Media Prima as we expect Media Prima to be a prime beneficiary of the faster recovery in TV adex
given that TV adex tends to be more sensitive to an improving economy. Aside from improving fundamentals,
further potential catalysts we see ahead for the enlarged entity include the potential realisation of merger
synergies and a rerating in valuations. Thus, we are reiterating our Outperform call on the stock.

♦ Overweight call maintained. No change to our Overweight stance on the sector.

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Chart 2: Print and TV ADEX Chart 3: ADEX By Company

(RMm) (RMm)
700.0
300

600.0
250

500.0
200

400.0
150

300.0 100

200.0 50

100.0 0

O ct

O ct

O ct
A pr

A pr

A pr
Dec

Dec

Dec
Feb

Aug

Feb

Aug

Feb

Ju n e

Aug
Ju n

Ju n
0.0
Oct

Oct

Oct
Dec

Dec

Dec
Apr

Apr

Apr
Feb

Aug

Feb

Aug

Feb

Aug
June
Jun

Jun
Media Prima Nexnews NSTP
Sin Chew Star Utusan
Print TV

Source: NMR

Chart 4: Malay Print ADEX By Title Chart 5: Chinese Print ADEX By Title

(RMm)
60

50

40

30

20

10

0
Dec

Dec

Dec
Apr

Apr

Apr
Oct

Feb

Aug

Feb

Aug

Oct

Feb

Aug
Jun

Jun

June
Oct

Harian Metro Kosmo Utusan Malaysia Berita Harian

Source: NMR

Chart 6: English Print ADEX By Title Chart 7: TV ADEX By Channel

(RMm) (RMm)
100 120

90

80 100

70
80
60

50
60
40

30 40
20

10 20

0
0
Apr

Apr

Apr
Oct

Dec

Dec

Oct

Dec
Feb

Aug

Feb

Aug

Feb

June

Aug
Jun

Jun
Oct

Malay Mail New Straits Times The Star

Oct

Dec

Dec

Oct

Dec
Feb

Apr

Aug

Feb

Apr

Aug

Feb

Apr

Aug
June
Jun

Jun
Oct

The Edge The Sun

8TV NTV7 TV1 TV2 TV3 TV9

Source: NMR

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Chart 8: YoY Adex Growth Chart 9: Media Prima – YoY Adex Growth

(yo y gro wth)

0.6

0.5

0.4

0.3

0.2

0.1

0
Oct Dec Feb A pr Jun A ug Oct Dec Feb A pr June A ug
-0.1

-0.2

P rint TV P rint + TV

Source: NMR

Chart 10 : Star – YoY Adex Growth Chart 11: MCIL – YoY Adex Growth

Source: NMR

Chart 12: NSTP – YoY Adex Growth

Source: NMR

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Chart 13: Media Technical View Point

♦ The share price of Media ended its previous uptrend
after hitting a high of RM2.37 in Apr 2010.

♦ As it drifted to below the RM2.20 support level in

May, the stock began a sideways trading trend
thereafter.

♦ In general, the stock has been fluctuating at

between a support-turn-resistance level of RM2.20
and the lower support of RM1.95 for the past
months.

♦ As shown on the choppy movements on both the

10-day and 40-day SMAs, plus the mixed readings
on the momentum indicators of late, the stock is
expected to continue its sideways range-bound
movement in weeks ahead.

♦ Until and unless it manages to break out from the

current range, the outlook on the stock will stay
neutral for now.

♦ A high resistance level is at RM2.44, while a lower

support is seen near RM1.80.

IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

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 23 September 2010

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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