Initiating Coverage

(Member of Alliance Bank group)

PP7766/03/2013 (032116) Media Prima Neutral

3 October 2012 Media Bloomberg Ticker: MPR MK | Bursa Code: 4502

Analyst Toh Woo Kim A diversified media conglomerate [email protected] +603 2604 3917 Against a backdrop of slower adex growth in 2013, we initiate coverage on Media Prima with a NEUTRAL recommendation and TP of RM2.52 based on target P/E of 12x FY13 earnings. Unresolved Eurozone debt crisis, lack of major adex-friendly events, and 12-month upside potential potential subsidy rationalisation post general election are expected to crimp overall adex Target price 2.52 growth in 2013, impacting the more sensitive TV segment of Media Prima, but fortunately Current price (as at 2 Oct) 2.38 Capital upside (%) 5.9 balanced out by its still growing Malay-language newspapers in the print segment. Key Net dividends (%) 5.1 catalyst for Media Prima will be introduction of new channels upon full implementation of Total return (%) 11.0 DTTB, while Astro’s potential aggressive move to grow its TV adex will be a key risk. Net dividend yield for Media Prima is expected to be about 5.1%, which is decent and comparable to peers. Key stock information Syariah-compliant? Yes TV – The dominant market leader Market cap (RM m) 2,569  Media Prima has an overall TV viewership share of 46%, giving it a dominant position in Issued shares (m) 1,079 Free float (%) 65 the TV segment. Free-to-air (FTA) TV adex has been growing faster and taking market 52-week high / low (RM) 2.66 / 1.96 share from newspapers since 2005. Over the years, the relaxation of the rules and 3-mth avg volume (‘000) 1,708 guidelines on advertisements has encouraged the growth of TV advertising in Malaysia. 3-mth avg turnover (RM m) 4.0  Given strong pricing power due to its dominant position, Media Prima is able to hike its advertising rates from time to time, allowing it to fully capitalise on an industry uptrend. Share price performance Even during a challenging period for adex, Media Prima is still able to selectively raise its 1M 3M 6M ad rates by 5-10%, particularly for prime time slots. Absolute (%) 0.4 10.5 -6.4 Relative (%) 0.1 8.1 -9.3 Newspapers – NSTP gaining grounds  Backed by favourable demographics and rising literacy rate, Malay-language newspapers Share price chart are actually seeing an upward trend in their overall daily circulation vs. flat or slight decline for English/Chinese-language newspapers. This is largely led by Media Prima flagship tabloid newspaper, Harian Metro.  Media Prima has been raising its advertising rates for Harian Metro above industry average, catching up with Star’s rates. Despite that, its rates are still 15-20% below Star currently, indicating there is still room for rates to increase further.

Digital TV – Opening up new possibilities  The full implementation of digital terrestrial TV broadcasting (DTTB) will enable Media Prima to introduce new channels and more advertising slots. Given Media Prima’s track record in growing new channels and effective segmentation strategy, we believe any revenue cannibalisation of its existing channels could be minimised. Having more channels and more contents will also help Media Prima to compete more effectively Major shareholders % with Astro for TV viewership share. Employees Provident Fund 18.4 Amanah Raya Bhd 11.4 Kumpulan Wang Pesaraan 5.2 Astro to grow its TV adex aggressively? Harris Associates 5.0  With the introduction of free satellite TV service NJOI, we believe Astro is planning to grow its adex revenue aggressively in order to compensate for the lack of growth in its pay-TV subscription service.  If NJOI was to take off very successfully, this would give certain Astro channels at least 80% household penetration. With that kind of reach, Astro could become a bigger player in the TV adex market, a risk to Media Prima current dominant position.

Valuation and recommendation  We value Media Prima at RM2.52 based on target P/E of 12x FY13 earnings, in line with its historical average and our target P/E for the sector. Hence, we initiate coverage on Media Prima with a NEUTRAL recommendation.  Net dividend yield for Media Prima is expected to be about 5.1%, which is decent and comparable to peers.

All required disclosure and analyst certification appear on the last two pages of this report. Additional information is available upon request. Redistribution or reproduction is prohibited without written permission Initiating Coverage | Media Prima | 3 October 2012

SNAPSHOT OF FINANCIAL AND VALUATION METRICS

Figure 1 : Key financial data

FYE 31 Dec FY10 FY11 FY12F FY13F FY14F

Revenue (RM m) 1,546.6 1,622.1 1,681.8 1,728.0 1,795.1 EBITDA (RM m) 418.0 398.5 412.8 426.0 450.8 EBIT (RM m) 317.4 300.9 313.4 326.3 350.9 Pretax profit (RM m) 295.3 279.5 292.0 306.1 331.9 Reported net profit (RM m) 242.3 207.7 214.0 224.4 243.3 Core net profit (RM m) 242.3 207.7 214.0 224.4 243.3 EPS (sen) 24.1 19.4 20.0 21.0 22.8 Core EPS (sen) 24.1 19.4 20.0 21.0 22.8 Alliance / Consensus (%) 109.4 104.8 102.6 Core EPS growth (%) 16.8 (19.2) 3.1 4.8 8.4 P/E (x) 9.9 12.2 11.9 11.3 10.5 EV/EBITDA (x) 5.2 5.4 5.0 4.7 4.2 ROE (%) 22.9 16.0 15.4 15.2 15.5 Net gearing (%) Net Cash Net Cash Net Cash Net Cash Net Cash Net DPS (sen) 10.0 16.0 12.0 12.6 13.7 Net dividend yield (%) 4.2 6.7 5.1 5.3 5.7 BV/share (RM) 1.22 1.28 1.36 1.44 1.53 P/B (x) 2.0 1.9 1.8 1.7 1.6

Source: Alliance Research, Bloomberg

Figure 2 : Forward P/E trend Figure 3 : Forward P/B trend

4.5 21 PE (x) PB (x) 4.0 18 3.5 +1sd = 14.9x +1sd = 3.0x 15 3.0

12 Avg = 10.8x 2.5 Avg = 2.0x 2.0 9 -1sd = 6.8x 1.5 6 -1sd = 1.0x 1.0 3 0.5 0 0.0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Source: Alliance Research, Bloomberg Source: Alliance Research, Bloomberg

Figure 4 : Peer comparison

Target Share Net Dividend price price Mkt Cap EPS Growth (%) P/E (x) P/B (x) ROE (%) Yield (%) Company Call (RM) (RM) (RM m) CY12 CY13 CY12 CY13 CY12 CY13 CY12 CY13 CY12 CY13

Media Chinese International Buy 1.84 1.64 2,767.1 3.8 3.3 14.2 13.8 3.3 3.8 23.5 27.5 4.4 4.4 Media Prima Neutral 2.52 2.38 2,568.5 3.1 4.8 11.9 11.3 1.8 1.7 14.8 14.6 5.1 5.3 Star Publications Neutral 3.12 3.16 2,333.9 -7.3 10.9 13.5 12.2 2.1 2.0 15.7 16.6 5.7 6.2

Average 7,669.4 0.0 6.1 13.2 12.4 2.4 2.5 18.2 19.9 5.0 5.2

Source: Alliance Research, Bloomberg Share price date: 20 September 2012

2 Initiating Coverage | Media Prima | 3 October 2012

A diversified media conglomerate

Figure 5 : Media Prima group structure

Source: Company

Transformation over the years

Media Prima has built its media Media Prima has transformed by leap and bounds over the years since its establishment empire via several M&As over the pursuant to the de-merger exercise of Malaysian Resources Corporation Bhd in 2003. years Starting with just a free-to-air (FTA) TV station and a 43%-stake in NSTP, Media Prima’s main media assets have now grown to four FTA TV stations, a higher 98%-stake in NSTP, three radio stations, and four outdoor advertising companies. These have been done through several M&A exercises (see Figure 6).

Figure 6 : M&A activities of Media Prima since its establishment in 2003

Period Acquisitions Platform August 2003 De-merger exercise with 100% stake in TV3 TV August 2003 De-merger exercise with 43% stake in NSTP Print January 2004 Acquired 80% equity stake in Merit Idea S/B, which was TV launched as 8TV April 2005 Acquires 75% stake in Max Airplay S/B, which was launched as Radio Fly.fm September 2005 Acquires 100% of CH-9 Media S/B, the operator of TV9 TV December 2005 Acquires 100% of Natseven TV S/B, the operator of ntv7 TV December 2005 Acquires 100% of Syncrosound Studio S/B, which was launched Radio as Hot.fm November 2006 Acquired 70% stake in Big Tree Outdoor Outdoor February 2007 Acquired 100% stake in UPD Outdoor February 2007 Acquired 100% stake in TRC from NSTP Outdoor March 2007 Acquired the remaining 30% stake in Big Tree Outdoor Outdoor June 2007 Acquired the remaining 20% stake in 8TV TV January 2009 Acquired 80% stake in Radio Wanita S/B and rebrands to Radio One.fm December 2010 Acquired the remaining 55% stake in NSTP Print December 2010 Acquired the remaining 25% stake in Fly.fm Radio May 2011 Acquired 100% stake in Kurnia Outdoor Outdoor

Source: Company, Alliance Research

3 Initiating Coverage | Media Prima | 3 October 2012

Dominant position in FTA TV and Malay-language newspaper in Malaysia

Excluding government-owned channels (RTM and Al-Hijrah), Media Prima virtually has a monopoly on all privately-held FTA TV stations in Malaysia. As such, it commands a sizeable 87% of the gross FTA TV adex in Malaysia (as at 1H12). See Figure 7.

Apart from that, Media Prima also holds a dominant position in the growing Malay-language Dominant position in FTA TV and newspaper segment with its flagship Harian Metro tabloid newspaper. The shift towards Malay-language newspaper vernacular newspapers in recent years has benefited Media Prima, which currently commands a 34% market share (that is still rising) of the print adex in Malaysia (see Figure 8).

Figure 7: Market share of FTA TV adex in 1H12 Figure 8 : Market share of print adex in 1H12

MCIL 23% RTM 13%

Media Prima 34%

Others 17% Media Prima 87%

Star 26%

Source: Company, Nielsen Media Research Source: Company, Nielsen Media Research

Decent market share in outdoor and radio

Beside FTA TV and print media, Media Prima also has decent market share in outdoor advertising and radio advertising. See Figures 9 and 10.

Figure 9: Market share of outdoor adex Figure 10 : Market share of radio adex, 1H12

Spectrum Seni Jaya 5% 7% Media Prima 27%

Redberry Group 16% Media Prima 44% RTM Astro 5% 53%

Star Others 15% 28%

Source: Company Source: Company, Nielsen Media Research

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TV – The dominant market leader

Capturing 46% of TV viewership share in Malaysia

Media Prima TV viewership share As at 2Q12, Media Prima has an overall TV viewership share of 46%, giving it a dominant stands at 46% position in the TV segment. Government-controlled TV stations (RTM and Al-Hijrah) are at a distant second with combined TV viewership of only 13%.

The viewership breakdown according to different categories of viewers helped to highlight Viewership breakdown shows Media Prima TV channels leadership position among the key target audiences i.e. TV3 and Media Prima leadership position in TV9 for Malay audiences, 8TV and nTV7 for Chinese audiences (see Figure 11). Effective key target audiences segmentation of its channels and contents has made it easier for Media Prima to capture the different target viewers that are relevant to various kinds of advertisers (see Figure 12).

Figure 11 : TV viewership share, Jan-June 2012 Station Total 4+ Viewers Chinese 4+ Viewers Malay 15+ Viewers

TV3 27 3 39

nTV7 5 17 2

8TV 6 26 2

TV9 8 0 10 Media Prima - Total 46 46 53 TV1 5 1 8 TV2 7 4 10 Al-Hijrah 1 1 1 Astro 41 48 28

Source: Company, Nielsen Audience Measurement

Figure 12 : Segmentation of Media Prima TV stations

Station Target Viewers Positioning Advertising Focus Mass market skewed towards Malay Channel synonymous with family, real- FMCG products, communications, audience, with progressive mindsets life, entertainment and news content services, transportation leaning toward cultural proximity – “Inspirasi Hidupku”

Malaysian urban households; 25-45 Television as an escapade – “My Feel Brands targeting the Malaysian urban

years old; kids & Chinese Good Channel” middle to high class; image products and lifestyle

Young Malaysian urban, Chinese; 15- Tastemaker, energetic and Brands targeting the young urban; 24 years old differentiation in content – “We are sports, energy drink, fashion, and different” Chinese viewers; health and wealth related

Mass market skewed towards young Young semi-urban Malays skewed FMCG products, non-traditional semi-urban and rural Malays content with a mixture of drama, real- advertisers, government life and current affairs – “Dekat Di Hati”

Source: Company

Is Astro high viewership a concern?

Pay-TV Astro also has a high TV viewership of 41%, but this not a concern for Media Prima as Pay-TV Astro viewership is Astro TV viewership is accumulated over 153 channels vs. only four channels for Media accumulated over 153 channels vs. Prima. Hence, Media Prima’s concentrated viewership is a better choice and more effective only 4 for Media Prima advertising medium for advertisers with its larger viewership base per channel compared to Astro.

5 Initiating Coverage | Media Prima | 3 October 2012

Moreover, Astro’s revenue is still mainly derived from subscription service, while advertising

revenue only made up less than 10% of its total annual revenue. A comparison between Astro’s discount factor is very high gross pay-TV adex reported by Nielsen and Astro’s net advertising revenue figure showed at >90% vs. 67% for Media Prima that the discount factor for Astro is very high at >90% (vs. 67% for Media Prima), reflecting

the fragmented viewership of Astro channels (and to some extent, the limitation of Nielsen

statistics).

Benefiting from rising overall adex share

FTA TV adex has been growing faster and taking market share from newspapers since 2005, FTA TV has been growing faster as shown in Figure 13 below. Over the years, the relaxation of the rules and guidelines (i.e. and taking market share from local content and restriction on foreign actors) on advertisements has allowed MNC newspapers advertisers to re-use their already-available regional or global commercials for TV advertising in Malaysia. Hence, this reduced the need to produce new commercials to suit local requirements, which effectively lower the cost of TV advertising.

From a cost perspective, advertisers also reckon that TV is still the more cost effective medium relative to newspapers, given its wider audience reach.

Still a larger gap between net adex Based on Nielsen Media Research official figures, FTA TV garnered 36% of Malaysia gross for FTA TV and newspapers, adex in 2011 vs. newspapers’ gross adex market share of 53%. However, in reality, there is indicating further room for growth still a larger gap between net adex for FTA TV and newspapers, bearing in mind the relatively higher discount factor for FTA TV (about 65-70%) compared to newspapers (about 15-30%).

Figure 13 : Adex market share of FTA TV vs. newspaper

70%

60% 61% 60% 58% 56% 54% 51% 51% 53% 50% Newspapers FTA TV 40%

38% 35% 37% 36% 30% 33% 31% 29% 29%

20% 2004 2005 2006 2007 2008 2009 2010 2011

Source: Nielsen Media Research

Strong pricing power due to dominant position

Given strong pricing power due to its dominant position, Media Prima is able to hike its Given dominant position, Media advertising rates from time to time, allowing it to fully capitalise on an industry uptrend. For Prima was able to hike its ad rates example, Media Prima was able to hike its TV ad rates by 15-30% in early 2011 when the even in bad times adex market was recovering strongly. This compared to a hike of only 5-6% in early 2010.

Even during a challenging period for adex such as in 1H12, Media Prima is still able to selectively raise its ad rates by 5-10%, particularly for prime time slots.

6 Initiating Coverage | Media Prima | 3 October 2012

Newspapers – NSTP gaining grounds

Rising circulation of Malay-language newspapers

Backed by favourable demographics and rising literacy rate, Malay-language newspapers are Malay-language newspapers are actually seeing an upward trend in their overall daily circulation vs. flat or slight decline for seeing an uptrend in daily English/Chinese-language newspapers (see Figure 14). This rising daily circulation of Malay- circulation language newspapers is largely led by Media Prima flagship tabloid newspaper, Harian Metro. Based on statistics from Audit Bureau of Circulation, Harian Metro actually accounted for 59% of the overall increase in Malay daily circulation since 2006 to 2011 (see Figure 15).

Figure 14: Average daily circulation, by language (in ‘000) Figure 15 : Malay newspapers average daily circulation (in ‘000)

Malay Chinese English 500 1,000 Berita Harian Utusan Malaysia

900 Kosmo Harian Metro 400 800 300 700

600 200 500

100 400 300 0 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11

Source: Audit Bureau of Circulation Source: Audit Bureau of Circulation

Adex spending on Malay-language newspapers is rising too

Rising circulation has led to higher adex spending and increase in market share for Malay- Market share for Malay-language language newspapers over the last few years, mainly at the expense of English-language newspapers have increased in newspapers (see Figure 16). This is not surprising as advertisers are adjusting their spending tandem with rising circulation patterns accordingly given the headwinds faced by English-language newspapers (i.e. English

content widely available online) compared to vernacular newspapers.

Figure 16 : Newspaper adex market share, by language (%)

English Chinese Malay 50 44 42 40 39 40 38 36 36

31 31 30 29 30 30 26 26 22 20

10

0 2008 2009 2010 2011 1H2012

Source: Company, Nielsen Media Research

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Harian Metro catching up with Star’s ad rates

Capitalising on the trend, Media Prima has been raising its advertising rates for Harian Metro Strong increase in ad rates for above industry average, catching up with Star’s rates (see Figure 17). Despite that, its rates Harian Metro are still 20% below Star currently, indicating there is still room for rates to increase. More high-quality advertisers are willing to advertise on Harian Metro now given the favourable circulation trend, and this gives Media Prima the pricing power to raise its rates.

Apart from raising rates, Media Prima is also looking to increase the ad-to-content ratio from Media Prima is also planning to 60:40 currently to 70:30, which will further help Media Prima to generate more revenue increase the ad-to-content ratio from its flagship Harian Metro newspaper.

Figure 17 : Official ad rates by leading newspapers (in RM per single column cm)

80

70

60

50

40

30

20 Harian Metro Star Sin Chew Daily 10 2005 2006 2007 2008 2009 2010 2011 2012

Source: Companies, Alliance Research

8 Initiating Coverage | Media Prima | 3 October 2012

Opportunity and risk

Digital TV – Compelling growth opportunity

Figure 18 : Phases in the DTT migration plan

Source: MCMC

The regulator is currently evaluating tender bids for FTA TV migration from analogue to digital terrestrial TV broadcasting (DTTB). Winner of the project will build and operate the Regulator is evaluating tender bids digital TV broadcast infrastructure so that all broadcasters such as RTM and Media Prima can for DTTB migration project utilise the infrastructure to transmit their TV programmes. According to the migration plan, there will be a simulcast period (concurrent transmission of analogue and digital TV) up to 2015 before analogue TV service is finally switched off (see Figure 18). The new platform is expected to have an expanded capacity of about 18 HD or 40-50 SD channels, vs. only 6 SD channels currently.

As far as Media Prima is concerned, management said it is not likely that Media Prima will incur higher expenses during the simulcast period. There are also no worries about higher Media Prima not going to incur transmission fees post migration, as it was clearly stipulated that the winner of the tender higher expenses during simulcast will not be able to charge more for transmission services and FTA TV players will still pay period existing rates. In terms of capex, the on-going replacement of analogue equipment with digital equipment is already part of its annual capex requirement and hence, there will not be a huge increase to capex once digital transmission starts. So far, Media Prima has spent about RM50-60m in total since 2H10 as part of its digital equipment replacement program.

In our view, the full implementation of DTTB will be a medium-term catalyst for Media DTTB is positive for Media Prima as Prima, as the company will then be able to introduce new channels (more advertising slots). there will be capacity for new Given Media Prima’s track record in growing new channels (8TV and TV9) and effective channels segmentation strategy, we believe any revenue cannibalisation of its existing channels could be minimised. Having more channels and more contents will also help Media Prima to compete more effectively with Astro for TV viewership share.

Media Prima also has a huge content library (about 70,000 programming hours of content), Hence, Media Prima is able to which it can leverage on when launching new channels. As these contents are already carried leverage on its huge content library at zero cost in its books, we believe the incremental costs (mostly additional transmission fees) on rolling out new channels will be rather minimal relative to the potential advertising revenue that could be generated.

Overall, while we are positive and confident that Media Prima will introduce new channels upon full implementation of DTTB, we have yet to input this into our forecasts given the longer-time horizon and lack of guidance from management for now.

9 Initiating Coverage | Media Prima | 3 October 2012

Astro to grow its TV adex aggressively?

With the introduction of free satellite TV service NJOI, we believe Astro is planning to grow We believe Astro is planning to its adex revenue aggressively in order to compensate for the lack of growth in its pay-TV grow its adex revenue subscription service. This seems to be the case considering that Media Prima free channels are excluded from NJOI, a departure from Astro current practice of including those channels in its pay-TV service.

According to Astro management, its current traditional pay-TV platform can reach up to 70% Njoi can help Astro to penetrate household penetration (from 50% penetration currently), while the remaining 30% will be 30% of lower-end household addressed by its lower-end NJOI platform. Hence, this would give certain Astro channels at least 80% household penetration if NJOI was to take off very successfully. With that kind of reach, Astro could become a bigger player in TV adex market, a risk to Media Prima current dominant position (see Figures 19 and 20)

Figure 19: Net TV adex in Malaysia (in RMm) Figure 20 : Share of 2011 net TV adex by operator

1,600 FTA TV Pay-TV RTM 11% 1,400

1,200 345 336 1,000 264 247 232 800 Astro

26% 600 961 1,006 400 753 829 784 Media Prima 200 63%

0

2007 2008 2009 2010 2011

Source: Company, Zenith, Astro IPO Prospectus Source: Zenith, Company, Astro IPO Prospectus

Comparison below shows that NJOI offers a few Malay and Chinese language channels that

could somehow compete with the four channels offered by Media Prima (see Figure 21). In

addition to that, NJOI has Tamil and education-focused channels that are not offered by

Media Prima channels.

Figure 21 : Comparison of Astro NJOI and Media Prima channels Type Media Prima Astro Njoi has channels that cater to the Malay TV3, TV9 Prima, Oasis Indian community as well as Chinese 8TV, NTV7 AEC, Jia Yu, CCTV-4 focusing on education Tamil - Vaanavil, Makkal

Education - Xiao Tai Yang, Tutor TV

News - Awani, Bernama

Source: Company, Alliance Research

10 Initiating Coverage | Media Prima | 3 October 2012

FORECAST, VALUATION & RECOMMENDATION

Slower earnings growth on weaker adex trend

Weaker outlook for adex in FY12- We expect Media Prima earnings growth to be relatively flat in FY12 and FY13, mainly due to 13, but pickup in FY14 a weaker outlook for adex. By FY14, there should be some pick-up in adex (especially TV) and earnings due to adex-friendly events such as the FIFA World Cup.

See Figure 22 for our adex growth assumptions for Media Prima TV and newspapers segments.

Some respite from lower newsprint costs

In line with current trend, we expect newsprint cost for Media Prima to be lower at Apart from rising adex, newspaper US$650/tonne in FY12-14, down from US$730/tonne recorded in 2011. Based on data from segment also benefit from lower RISI, the lower price trend for newsprint is largely due to an overcapacity in the global newsprint costs newsprint industry currently, arising from steep demand declines in US and EU, a slowdown in growth from Asia, and new capacity coming up in developing markets.

For RM/US$ exchange rate, our economist team expect it to remain relatively stable at RM3.05-3.10/US$ in FY12-14 vis-a-vis FY11’s average of RM3.06/US$.

Overall, the underlying key assumptions of our forecasts are summarised below.

Figure 22 : Key assumptions

2010A 2011A 2012F 2013F 2014F Adex growth (%) TV 14.5 5.1 5.0 3.0 5.0 Newspapers 21.3 11.9 4.0 3.0 4.0

Newsprint cost (US$/tonne) 630 730 650 650 650 RM/US$ exchange rate 3.22 3.06 3.10 3.05 3.05

Source: Company, Alliance Research

Dividend payout

Media Prima has a dividend payout policy ranging from 25-75%. We forecast a 60% dividend We estimate 60% dividend payout payout ratio for FY12-14, in line with its payout ratio in 2010 (excluding special dividend). The for Star yearly dividend payment of RM130-150m is comfortably covered by its annual free cashflow of RM200-230m.

Initiating coverage with Neutral recommendation

We value Media Prima at RM2.52 based on target P/E of 12x FY13 earnings, in line with its historical average and our target P/E for the sector. Unresolved Eurozone debt crisis, lack of Initiate coverage with NEUTRAL major adex-friendly events, and potential subsidy rationalisation post general election are and TP of RM2.52 expected to crimp overall adex growth in 2013, impacting the more sensitive TV segment of Media Prima, but fortunately balanced out by its still growing Malay-language newspapers in the print segment. Hence, we initiate coverage with a NEUTRAL recommendation.

Key catalyst for Media Prima will be introduction of new channels upon full implementation of DTTB, while Astro’s potential aggressive move to grow its TV adex will be a key risk. Net dividend yield for Media Prima is expected to be about 5.1%, which is decent and comparable to peers.

11 Initiating Coverage | Media Prima | 3 October 2012

Media Prima Financial Summary Price Date: 02 October 2012

Balance Sheet Income Statement FYE Dec FY10 FY11 FY12F FY13F FY14F FYE Dec FY10 FY11 FY12F FY13F FY14F PPE 728.7 727.1 730.0 732.5 734.7 Revenue 1,546.6 1,622.1 1,681.8 1,728.0 1,795.1 Intangibles 381.8 370.5 362.9 378.3 387.0 EBITDA 418.0 398.5 412.8 426.0 450.8 Inventories 108.5 145.8 152.9 157.1 163.2 Depn & amort (100.7) (97.6) (99.4) (99.6) (99.9) Receivables 344.9 379.8 373.7 384.0 398.9 Net interest expense (28.2) (23.5) (23.4) (22.2) (21.0) Other assets 353.2 341.2 341.0 340.9 340.8 Associates & JV 6.2 2.1 2.0 2.0 2.0 Deposit, bank and cash 317.9 450.1 541.5 612.8 697.4 EI - - - - - Assets 2,235.1 2,414.4 2,502.0 2,605.5 2,721.9 Pretax profit 295.3 279.5 292.0 306.1 331.9 Taxation (44.7) (72.1) (75.9) (79.6) (86.3) LT borrowings 201.0 187.0 187.0 187.0 187.0 Discotinued operation (1.6) 2.3 - - - ST borrowings 14.0 56.0 56.0 56.0 56.0 MI (6.7) (2.0) (2.1) (2.2) (2.4) Payables 311.0 420.6 420.4 432.0 448.8 Net profit 242.3 207.7 214.0 224.4 243.3 Other liabilities 459.0 368.5 368.5 368.5 368.5 Adj net profit 242.3 207.7 214.0 224.4 243.3 Liabilities 984.9 1,032.0 1,031.9 1,043.5 1,060.2 Key Statistics & Ratios Share capital 1,006.7 1,068.2 1,068.2 1,068.2 1,068.2 FYE Dec FY10 FY11 FY12F FY13F FY14F Reserves 220.5 295.7 381.3 471.0 568.3 Shareholder's equity 1,227.2 1,363.8 1,449.4 1,539.2 1,636.5 Growth MI 23.0 18.6 20.6 22.8 25.2 Revenue 107.9% 4.9% 3.7% 2.7% 3.9% Equity 1,250.2 1,382.4 1,470.1 1,562.0 1,661.7 EBITDA 19.0% -4.7% 3.6% 3.2% 5.8% Pretax profit 7.1% -5.3% 4.5% 4.8% 8.4% Equity and Liabilities 2,235.1 2,414.4 2,502.0 2,605.5 2,721.9 Net profit 24.4% -14.3% 3.1% 4.8% 8.4% Adj EPS 16.8% -19.2% 3.1% 4.8% 8.4% Cash Flow Statement FYE Dec FY10 FY11 FY12F FY13F FY14F Profitability Profit before taxation 250.6 209.7 216.1 226.5 245.6 EBITDA margin 27.0% 24.6% 24.5% 24.7% 25.1% Depreciation & amortisatio 100.7 97.6 99.4 99.6 99.9 Net profit margin 15.7% 12.8% 12.7% 13.0% 13.6% Changes in working capital 29.4 (57.4) (1.2) (2.9) (4.2) Effective tax rate 15.1% 25.8% 26.0% 26.0% 26.0% Net interest received/ (paid 28.2 23.5 - - - ROA 11.6% 8.9% 8.8% 8.9% 9.2% Share of associates & JV pro (6.2) (2.1) (2.0) (2.0) (2.0) ROE 22.9% 16.0% 15.4% 15.2% 15.5% Tax paid (51.6) (61.2) - - - Others 34.5 64.7 7.5 (15.3) (8.7) Leverage Operating Cash Flow 385.7 274.8 319.8 305.9 330.5 Debt/ Assets (x) 0.10 0.10 0.10 0.09 0.09 Debt/ Equity (x) 0.18 0.18 0.17 0.16 0.15 Capex (70.7) (91.9) (100.0) (100.0) (100.0) Net debt/ equity (x) Net Cash Net Cash Net Cash Net Cash Net Cash Others 14.9 14.6 - - - Investing Cash Flow (55.9) (77.3) (100.0) (100.0) (100.0) Key Drivers FYE Dec FY10 FY11 FY12F FY13F FY14F Issuance of shares 16.0 110.9 - - - Adex growth - TV (%) 14.5 5.1 5.0 3.0 5.0 Changes in borrowings (51.6) (49.4) - - - Adex growth - Newspaper (%) 21.3 11.9 4.0 3.0 4.0 Dividends paid (96.5) (97.9) (128.4) (134.6) (146.0) Others (30.9) (42.1) - - - Newsprint cost (US$/tonne) 630 730 650 650 650 Financing Cash Flow (163.0) (78.5) (128.4) (134.6) (146.0) RM/US$ exchange rate 3.22 3.06 3.10 3.05 3.05

Net cash flow 166.9 119.0 91.4 71.3 84.6 Valuation Forex 0.2 - - - - FYE Dec FY10 FY11 FY12F FY13F FY14F Beginning cash 317.9 305.9 424.9 516.3 587.6 EPS (sen) 24.1 19.4 20.0 21.0 22.8 Restricted cash/overdraft 12.0 25.2 25.2 25.2 25.2 Adj EPS (sen) 24.1 19.4 20.0 21.0 22.8 Ending cash 496.9 450.1 541.5 612.8 697.4 P/E (x) 9.9 12.2 11.9 11.3 10.5 EV/ EBITDA (x) 5.2 5.4 5.0 4.7 4.2

Net DPS (sen) 10.0 16.0 12.0 12.6 13.7 Yield 4.2% 6.7% 5.1% 5.3% 5.7% BV per share (RM) 1.22 1.28 1.36 1.44 1.53 P/BV (x) 2.0 1.9 1.8 1.7 1.6

12 Initiating Coverage | Media Prima | 3 October 2012 DISCLOSURE

Stock rating definitions

Strong buy - High conviction buy with expected 12-month total return (including dividends) of 30% or more Buy - Expected 12-month total return of 15% or more Neutral - Expected 12-month total return between -15% and 15% Sell - Expected 12-month total return of -15% or less Trading buy - Expected 3-month total return of 15% or more arising from positive newsflow. However, upside may not be sustainable

Sector rating definitions

Overweight - Industry expected to outperform the market over the next 12 months Neutral - Industry expected to perform in-line with the market over the next 12 months Underweight - Industry expected to underperform the market over the next 12 months

Commonly used abbreviations

Adex = advertising expenditure EPS = earnings per share PBT = profit before tax bn = billion EV = enterprise value P/B = price / book ratio BV = book value FCF = free cash flow P/E = price / earnings ratio CF = cash flow FV = fair value PEG = P/E ratio to growth ratio CAGR = compounded annual growth rate FY = financial year q-o-q = quarter-on-quarter Capex = capital expenditure m = million RM = Ringgit CY = calendar year M-o-m = month-on-month ROA = return on assets Div yld = dividend yield NAV = net assets value ROE = return on equity DCF = discounted cash flow NM = not meaningful TP = target price DDM = dividend discount model NTA = net tangible assets trn = trillion DPS = dividend per share NR = not rated WACC = weighted average cost of capital EBIT = earnings before interest & tax p.a. = per annum y-o-y = year-on-year EBITDA = EBIT before depreciation and amortisation PAT = profit after tax YTD = year-to-date

13 Initiating Coverage | Media Prima | 3 October 2012 DISCLAIMER

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