Published September 2, 2009

Recovery seen as Media Prima turns around

Group posts RM8.5m Q2 profit after RM23m loss in Q1

By S JAYASANKARAN
IN KUALA LUMPUR
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MEDIA conglomerate Media Prima swung back to profitability in its second quarter, indicating that the Malaysian economy was recovering. Historically, the company's earnings have been highly correlated with growth in gross domestic product.

For the quarter to June 2009, the firm registered a net profit of RM8.5 million (S$3.47 million) compared to a RM23.2 million loss for the previous quarter. Even so, the company recorded a loss of over RM14 million in the first half of the year.

The firm is Malaysia's largest media conglomerate with interests in print (the New Straits Times Press), television (four free-to-air television channels in Malaysia and a loss-making one in the Philippines), three radio stations and outdoor advertising.

It is also an overtly 'political' firm as it is controlled, in part, by the United Malays National Organisation (Umno), the dominant party in the ruling Barisan Nasional coalition. In practical terms, this usually manifests itself in editorial and board changes every time there is a power shift within Umno.

The company's turnaround has prompted several securities houses - ECM Libra and Arab-Malaysian Bank, for example - to issue a buy call on its stock based on the hope that it signalled a gradual recovery in television advertising expenditure (adex) which is the main driver (75 per cent) of Media Prima's earnings.



Unlike in Western economies where television consumes the biggest share of adex, in Malaysia the print media gets the biggest slice. But television's share is growing.

According to Nielsen, television's share of adex rose to 35 per cent in the first half of the year compared to 33 per cent in the corresponding period last year. Meanwhile, the print media's share declined to 54 per cent from 57 per cent during the same time.

Indeed, analysts expect this trend to be sustained because of demographics. Half the country's population is under the age of 25 while a full 40 per cent are under 40. The huge young population, according to analysts, will skew adex towards television.

If the trend is borne out, Media Prime is likely to be the biggest beneficiary going forward as it commands television viewership of 52 per cent of all households and it holds 85 per cent of television's adex.

In calling it a buy, Arab-Malaysian Bank said that Media Prima was the best proxy to ride on the economic recovery. In addition it said that television adex was slated to rise next year given such major events as the World Cup and the Commonwealth Games.

It estimated the stock's 'fair' value at RM2 compared to its current price of around RM1.40.