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PP 7767/09/2011(028730)

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

Se ctor Up dat e
21 October 2010
MARKET DATELINE

Media Recom : Overweight


(Maintained)
9M10 Print And TV Adex Up By 18.2%

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
Media Prima Dec 2.27 2.75 16.5 19.4 21.3 17.6 13.8 11.7 0.3 0.1 5.0 OP
Media Chinese^ Mar 0.88 1.21 9.5 9.9 3.1 3.7 9.2 8.9 net cash net cash 6.8 OP
Star Dec 4.12 4.43 27.7 28.2 4.4 1.8 14.9 14.6 net cash net cash 5.6 TB
Sector Average 8.9 7.5 12.8 11.9
^ FY11-12valuations refer to those of FY12-FY13

♦ Sep’s adex for print and TV media grew 3.4% yoy. According to Chart 1: Relative Performance To
FBM KLCI
Nielsen Media Research (NMR), Sep’s gross ad spend for print and TV
media rose 3.4% yoy with print adex up 7.0% yoy, while adex for TV
remained flat yoy. MoM, total print and TV gross adex fell by 14.5%. This
MCIL
was not too surprising considering that Aug adex benefited from the
Merdeka celebrations and Hari Raya festival.
Media Prima
♦ Print media for adex grew 7.0% yoy. For the print media segment,
FBM KLCI
Sep’s adex growth was led by the Chinese dailies (13.8% yoy), where all Star
of MCIL’s newspapers recorded stronger yoy numbers. This was followed
by the English dailies, where adex grew 8.7% yoy led

♦ by Malay Mail (+301.6% yoy) and Star (+8.5% yoy). As for the Malay
segment, gross adex remained relatively flat yoy largely due to weaker
adex by Utusan Malaysia (-10.9% yoy) and Harian Metro (-2.3% yoy),
offset by the stronger adex from Berita Harian (+14.7% yoy).

♦ TV gross adex – flat yoy. Sep’s TV adex growth was flat yoy due to
weaker adex recorded by the Media Prima channels (-6.1% yoy), offset
by the stronger numbers from TV2 (+45.2% yoy) and TV1 (+32.6% yoy).
PER = 12x
♦ Adex outlook. While 9M10 adex growth stood at 18.2% yoy, we expect
the growth rate to slow down in 4Q10. Firstly, following the strong start PER = 11x
to the global economic recovery in 1H10, we believe the economy will
likely grow at a more moderate pace in 2H10, although we do not expect PER = 10x
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 the year-end festivities.

♦ 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 and


David Chong, CFA
Media Prima and maintain our Trading Buy call on Star. No change to
(603) 9280 2179
our Overweight stance on the sector. david.chong@rhb.com.my

Please read important disclosures at the end of this report.

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Sep 2010 – 9M10 Print And TV Adex Up By 18.2%

♦ Sep ’10 adex up 3.4% yoy. According to Nielsen Media Research (NMR), Sep’s gross advertising expenditure
(adex) for TV and print media grew at a slower pace of 3.4% yoy. Adex for the print segment up 7.0% yoy (-
16.1% mom) but adex for the TV media was flat yoy (-12.7% mom). MoM, total print and TV gross adex
contracted by 14.5%. This was not too surprising considering that Sep tends to be a seasonally slower month
post the Merdeka celebrations. In addition, we believe Aug’s adex also benefited from higher ad spending due to
the Hari Raya festival.

For 9M10, ad spending grew 18.2% yoy as adex for both TV and print media grew 20.7% yoy and 16.2% 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, Thomas/Uber Cup and Commonwealth games.

♦ Print media adex grew 7.0% yoy. For the print media segment, Sep’s adex growth was led by the Chinese
dailies (+13.8% yoy; -9.1% mom), where all of MCIL’s newspapers recorded stronger yoy numbers (China Press:
+22.4% yoy, -8.0% mom; Guang Ming: +26.6% yoy, -11.7% mom; Nanyang: +19.3% yoy, +16.3% mom; Sin
Chew: +10.9% yoy, -10.4% mom). We understand that the growth was broad-based i.e. across different
segments (e.g. properties and classifieds) and industries (e.g. consumer goods). This was followed by the English
dailies, where adex grew 8.7% yoy (-12.2% mom) led by Star (+8.5% yoy; -9.4% mom). NST’s adex also grew
1.7% yoy (-23.4% mom). As for the Malay dailies, gross adex remains flat yoy largely due to weaker yoy adex
for Utusan Malaysia (-10.9% yoy; -29.8% mom) and Harian Metro (-2.3% yoy; 28.6% mom), offset by the
stronger adex by Berita Harian (+14.7% yoy; -17.1% mom).

For the quarter-ended 30 Sep, MCIL reported the strongest performance as adex grew 15.0% yoy (flat qoq) as
stronger numbers were reported across the board for all of its newspapers. This was followed by NSTP, where
adex grew 14.3% yoy (+10.1% qoq) with all three dailies, i.e. Berita Harian (+18.6% yoy; +21.3% qoq), Harian
Metro (+14.9% yoy; +6.2% qoq) and NST (+9.7% yoy; +6.2% qoq), reporting strong numbers. Star also
maintained its strong performance in 9MFY10 as adex grew 8.5% yoy (-6.8% qoq).

♦ TV gross adex – flat yoy. Sep’s TV adex remained relatively flat yoy (-12.7% mom) largely due to weaker adex
recorded by the Media Prima channels (-6.1% yoy; -16.5% mom), offset by the stronger numbers from TV2
(+45.2% yoy; 11.6% mom) and TV1 (+32.6% yoy; +30.6% mom). Collectively, Media Prima’s channels
recorded weaker adex as TV3 and TV9 adex fell 12.9% yoy and 14.2% yoy respectively. We believe the flat adex
growth for TV was due to a higher base effect given that the economy had begun to recover from 2H09.

For the quarter, gross adex for Media Prima’s channels was up 4.3% yoy (+6.1% qoq) mainly due to 8TV
(+16.8% yoy) and NTV7 (+8.0% yoy). As for 9MFY10, adex for Media Prima grew 17.8% yoy thanks to 8TV
(+25.9% yoy) and TV9 (+20.0% yoy), while adex for TV3 also grew 13.6% yoy.

Adex Outlook

♦ Adex outlook. While 9M10 adex growth stood at 18.2% yoy, we expect the growth rate to slow down in 4Q10.
Firstly, following the strong start to the global economic recovery in 1H10, we believe the economy will likely
grow at a more moderate pace in 2H10 although 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 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$).

Forecasts And Assumptions

♦ No change to our net profit forecasts. No change to our earnings forecasts for now.

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Valuations And Recommendation

♦ Valuations and recommendations unchanged. Our fair values and recommendations remain unchanged for
the print media players, i.e. Star (TB, FV= RM4.43) and MCIL (OP, FV= RM1.21). No change as well to our
fair values and recommendation for Media Prima (OP, FV= RM2.75).

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

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

Source: NMR

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

Source: NMR

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

Source: NMR

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Chart 8: YoY Adex Growth Chart 9: Quarterly Adex – Print & TV

Source: NMR

Chart 10 : Media Prima – YoY Adex Growth Chart 11: Star – YoY Adex Growth

Source: NMR

Chart 12: MCIL – YoY Adex Growth Chart 13: NSTP – YoY Adex Growth

Source: NMR

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Table 2: Gross Adex


QoQ YoY YoY
RMm 3Q09 2Q10 3Q10 (%) (%) 9MFY09 9MFY10 (%) Comments
NSTP 272.2 282.6 311.1 10.1 14.3 718.0 812.3 13.1
- Harian Metro 112.5 121.7 129.2 6.2 14.9 282.8 341.0 20.6
- Berita Harian 74.3 72.7 88.2 21.3 18.6 190.8 216.9 13.7
85.4 88.3 93.8 6.2 9.7 244.4 254.5 4.1
- NST

Star 226.4 263.5 245.7 (6.8) 8.5 613.3 742.3 21.0

MCIL 167.5 191.1 192.6 0.8 15.0 462.1 566.4 22.6


- Sin Chew 85.0 95.7 93.3 (2.5) 9.9 249.1 283.2 13.7
- Guang Ming 15.8 17.3 19.3 11.7 22.3 44.3 54.1 22.3
- China Press 55.2 67.2 67.1 (0.2) 21.4 136.5 193.4 41.7
- Nanyang 11.5 10.9 12.9 17.6 11.6 32.3 35.7 10.6

Media Prima 631.1 620.6 658.3 6.1 4.3 1,528.3 1,800.2 17.8
- TV3 314.2 287.9 313.6 8.9 (0.2) 730.7 829.7 13.6
- 8TV 105.6 124.4 123.3 (0.9) 16.8 282.8 356.1 25.9
- NTV7 106.3 113.8 114.8 0.9 8.0 281.7 334.8 18.8
- TV9 105.0 94.4 106.5 12.8 1.4 233.1 279.6 20.0
Source: NMR

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
(previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
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contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
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may from time to time have an interest in the securities mentioned by this report.

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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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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.

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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