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

(Member of Alliance Bank group) PP7766/03/2013 (032116)

3 October 2012

A diversified media conglomerate 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 potential subsidy rationalisation post general election are 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. 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. TV – The dominant market leader Media Prima has an overall TV viewership share of 46%, giving it a dominant position in

the TV segment. Free-to-air (FTA) TV adex has been growing faster and taking market share from newspapers since 2005. Over the years, the relaxation of the rules and guidelines on advertisements has encouraged the growth of TV advertising in Malaysia.

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

Newspapers – NSTP gaining grounds Backed by favourable demographics and rising literacy rate, Malay-language newspapers

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 with Astro for TV viewership share.

Astro to grow its TV adex aggressively? 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.

Media Prima Neutral Media Bloomberg Ticker: MPR MK | Bursa Code: 4502

Initiating Coverage

Analyst Toh Woo Kim wookim@alliancefg.com +603 2604 3917 12-month upside potential Target price 2.52 Current price (as at 2 Oct) 2.38 Capital upside (%) 5.9 Net dividends (%) 5.1 Total return (%) 11.0 Key stock information Syariah-compliant? Yes Market cap (RM m) 2,569 Issued shares (m) 1,079 Free float (%) 65 52-week high / low (RM) 2.66 / 1.96 3-mth avg volume (‘000) 1,708 3-mth avg turnover (RM m) 4.0 Share price performance 1M 3M 6M Absolute (%) 0.4 10.5 -6.4 Relative (%) 0.1 8.1 -9.3 Share price chart

Major shareholders % Employees Provident Fund 18.4 Amanah Raya Bhd 11.4 Kumpulan Wang Pesaraan 5.2 Harris Associates 5.0

Initiating Coverage | Media Prima | 3 October 2012

2

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

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

Figure 4 : Peer comparison

Company Call

Target price (RM)

Share price (RM)

Mkt Cap (RM m)

EPS Growth (%) P/E (x) P/B (x) ROE (%) Net Dividend

Yield (%) 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

0

3

6

9

12

15

18

21

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

PE (x)

+1sd = 14.9x

Avg = 10.8x

-1sd = 6.8x

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

PB (x)

+1sd = 3.0x

Avg = 2.0x

-1sd = 1.0x

Initiating Coverage | Media Prima | 3 October 2012

3

A diversified media conglomerate

Figure 5 : Media Prima group structure

Source: Company Transformation over the years Media Prima has transformed by leap and bounds over the years since its establishment pursuant to the de-merger exercise of Malaysian Resources Corporation Bhd in 2003. 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

launched as 8TV TV

April 2005 Acquires 75% stake in Max Airplay S/B, which was launched as Fly.fm

Radio

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

as Hot.fm Radio

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

One.fm Radio

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

Media Prima has built its media empire via several M&As over the

years

Initiating Coverage | Media Prima | 3 October 2012

4

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 newspaper segment with its flagship Harian Metro tabloid newspaper. The shift towards 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

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

Source: Company Source: Company, Nielsen Media Research

Media Prima 87%

RTM 13%

Media Prima34%

MCIL23%

Others17%

Star26%

Media Prima44%

Others28%

Redberry Group16%

Seni Jaya7%

Spectrum5%

Media Prima27%

Astro53%

Star15%

RTM5%

Dominant position in FTA TV and Malay-language newspaper

Initiating Coverage | Media Prima | 3 October 2012

5

TV – The dominant market leader Capturing 46% of TV viewership share in Malaysia As at 2Q12, Media Prima has an overall TV viewership share of 46%, giving it a dominant 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 Media Prima TV channels leadership position among the key target audiences i.e. TV3 and TV9 for Malay audiences, 8TV and nTV7 for Chinese audiences (see Figure 11). Effective 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 audience, with progressive mindsets

Channel synonymous with family, real-life, entertainment and news content leaning toward cultural proximity – “Inspirasi Hidupku”

FMCG products, communications, services, transportation

Malaysian urban households; 25-45 years old; kids & Chinese

Television as an escapade – “My Feel Good Channel”

Brands targeting the Malaysian urban middle to high class; image products and lifestyle

Young Malaysian urban, Chinese; 15-24 years old

Tastemaker, energetic and differentiation in content – “We are different”

Brands targeting the young urban; sports, energy drink, fashion, and Chinese viewers; health and wealth related

Mass market skewed towards young semi-urban and rural Malays

Young semi-urban Malays skewed content with a mixture of drama, real-life and current affairs – “Dekat Di Hati”

FMCG products, non-traditional advertisers, government

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 Astro TV viewership is accumulated over 153 channels vs. only four channels for Media Prima. Hence, Media Prima’s concentrated viewership is a better choice and more effective advertising medium for advertisers with its larger viewership base per channel compared to Astro.

Media Prima TV viewership share stands at 46%

Viewership breakdown shows Media Prima leadership position in

key target audiences

Pay-TV Astro viewership is accumulated over 153 channels vs.

only 4 for Media Prima

Initiating Coverage | Media Prima | 3 October 2012

6

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 gross pay-TV adex reported by Nielsen and Astro’s net advertising revenue figure showed 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, as shown in Figure 13 below. Over the years, the relaxation of the rules and guidelines (i.e. local content and restriction on foreign actors) on advertisements has allowed MNC 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. Based on Nielsen Media Research official figures, FTA TV garnered 36% of Malaysia gross adex in 2011 vs. newspapers’ gross adex market share of 53%. However, in reality, there is 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

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 advertising rates from time to time, allowing it to fully capitalise on an industry uptrend. For example, Media Prima was able to hike its TV ad rates by 15-30% in early 2011 when the 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.

60% 61%58% 56%

54% 51% 51% 53%

29% 29%31%

33% 35% 37% 38% 36%

20%

30%

40%

50%

60%

70%

2004 2005 2006 2007 2008 2009 2010 2011

Newspapers

FTA TV

Astro’s discount factor is very high

at >90% vs. 67% for Media Prima

FTA TV has been growing faster and taking market share from

newspapers

Still a larger gap between net adex for FTA TV and newspapers,

indicating further room for growth

Given dominant position, Media Prima was able to hike its ad rates

even in bad times

Initiating Coverage | Media Prima | 3 October 2012

7

Newspapers – NSTP gaining grounds Rising circulation of Malay-language newspapers Backed by favourable demographics and rising literacy rate, Malay-language newspapers are actually seeing an upward trend in their overall daily circulation vs. flat or slight decline for English/Chinese-language newspapers (see Figure 14). This rising daily circulation of Malay-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)

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-language newspapers over the last few years, mainly at the expense of English-language newspapers (see Figure 16). This is not surprising as advertisers are adjusting their spending 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 (%)

Source: Company, Nielsen Media Research

300

400

500

600

700

800

900

1,000

Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11

Malay Chinese English

0

100

200

300

400

500

Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11

Berita Harian Utusan Malaysia

Kosmo Harian Metro

4238

4440 39

36 36

30 29 30

2226 26

31 31

0

10

20

30

40

50

2008 2009 2010 2011 1H2012

English Chinese Malay

Malay-language newspapers are seeing an uptrend in daily

circulation

Market share for Malay-language newspapers have increased in tandem with rising circulation

Initiating Coverage | Media Prima | 3 October 2012

8

Harian Metro catching up with Star’s ad rates Capitalising on the trend, Media Prima has been raising its advertising rates for Harian Metro above industry average, catching up with Star’s rates (see Figure 17). Despite that, its rates 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 60:40 currently to 70:30, which will further help Media Prima to generate more revenue from its flagship Harian Metro newspaper.

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

Source: Companies, Alliance Research

10

20

30

40

50

60

70

80

2005 2006 2007 2008 2009 2010 2011 2012

Harian Metro Star Sin Chew Daily

Strong increase in ad rates for Harian Metro

Media Prima is also planning to increase the ad-to-content ratio

Initiating Coverage | Media Prima | 3 October 2012

9

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 digital TV broadcast infrastructure so that all broadcasters such as RTM and Media Prima can 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 transmission fees post migration, as it was clearly stipulated that the winner of the tender will not be able to charge more for transmission services and FTA TV players will still pay 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 Prima, as the company will then be able to introduce new channels (more advertising slots). Given Media Prima’s track record in growing new channels (8TV and TV9) 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 with Astro for TV viewership share. Media Prima also has a huge content library (about 70,000 programming hours of content), which it can leverage on when launching new channels. As these contents are already carried 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.

Regulator is evaluating tender bids for DTTB migration project

Media Prima not going to incur higher expenses during simulcast

period

DTTB is positive for Media Prima as there will be capacity for new

channels

Hence, Media Prima is able to leverage on its huge content library

Initiating Coverage | Media Prima | 3 October 2012

10

Astro to grow its TV adex aggressively? 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. 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% household penetration (from 50% penetration currently), while the remaining 30% will be 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

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 Malay TV3, TV9 Prima, Oasis

Chinese 8TV, NTV7 AEC, Jia Yu, CCTV-4 Tamil - Vaanavil, Makkal

Education - Xiao Tai Yang, Tutor TV News - Awani, Bernama

Source: Company, Alliance Research

753 829 784961 1,006

247264

232

336 345

0

200

400

600

800

1,000

1,200

1,400

1,600

2007 2008 2009 2010 2011

FTA TV Pay-TV

Media Prima63%

RTM11%

Astro26%

We believe Astro is planning to

grow its adex revenue

Njoi can help Astro to penetrate 30% of lower-end household

Njoi has channels that cater to the Indian community as well as

focusing on education

Initiating Coverage | Media Prima | 3 October 2012

11

FORECAST, VALUATION & RECOMMENDATION Slower earnings growth on weaker adex trend We expect Media Prima earnings growth to be relatively flat in FY12 and FY13, mainly due to 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 US$650/tonne in FY12-14, down from US$730/tonne recorded in 2011. Based on data from RISI, the lower price trend for newsprint is largely due to an overcapacity in the global newsprint industry currently, arising from steep demand declines in US and EU, a slowdown in growth from Asia, and new capacity coming up in developing markets. For RM/US$ 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 payout ratio for FY12-14, in line with its payout ratio in 2010 (excluding special dividend). The 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 major adex-friendly events, and potential subsidy rationalisation post general election are 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.

Weaker outlook for adex in FY12-

13, but pickup in FY14

Apart from rising adex, newspaper segment also benefit from lower

newsprint costs

We estimate 60% dividend payout for Star

Initiate coverage with NEUTRAL and TP of RM2.52

Initiating Coverage | Media Prima | 3 October 2012

12

Media Prima Financial Summary

Balance Sheet Income StatementFYE Dec FY10 FY11 FY12F FY13F FY14F FYE Dec FY10 FY11 FY12F FY13F FY14FPPE 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 l iabil ities 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 & RatiosShare capital 1,006.7 1,068.2 1,068.2 1,068.2 1,068.2 FYE Dec FY10 FY11 FY12F FY13F FY14FReserves 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 GrowthMI 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 StatementFYE Dec FY10 FY11 FY12F FY13F FY14F ProfitabilityProfit 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) LeverageOperating 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 CashOthers 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 FY14FIssuance 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 ValuationForex 0.2 - - - - FYE Dec FY10 FY11 FY12F FY13F FY14FBeginning 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

Price Date: 02 October 2012

Initiating Coverage | Media Prima | 3 October 2012

13

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

Initiating Coverage | Media Prima | 3 October 2012

14

DISCLAIMER This report has been prepared for information purposes only by Alliance Research Sdn Bhd (Alliance Research), a subsidiary of Alliance Investment Bank Berhad (AIBB). This report is strictly confidential and is meant for circulation to clients of Alliance Research and AIBB only or such persons as may be deemed eligible to receive such research report, information or opinion contained herein. Receipt and review of this report indicate your agreement not to distribute, reproduce or disclose in any other form or medium (whether electronic or otherwise) the contents, views, information or opinions contained herein without the prior written consent of Alliance Research. This report is based on data and information obtained from various sources believed to be reliable at the time of issuance of this report and any opinion expressed herein is subject to change without prior notice and may differ or be contrary to opinions expressed by Alliance Research’s affiliates and/or related parties. Alliance Research does not make any guarantee, representation or warranty (whether express or implied) as to the accuracy, completeness, reliability or fairness of the data and information obtained from such sources as may be contained in this report. As such, neither Alliance Research nor its affiliates and/or related parties shall be held liable or responsible in any manner whatsoever arising out of or in connection with the reliance and usage of such data and information or third party references as may be made in this report (including, but not limited to any direct, indirect or consequential losses, loss of profits and damages). The views expressed in this report reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendation(s) or view(s) in this report. Alliance Research prohibits the analyst(s) who prepared this report from receiving any compensation, incentive or bonus based on specific investment banking transactions or providing a specific recommendation for, or view of, a particular company. This research report provides general information only and is not to be construed as an offer to sell or a solicitation to buy or sell any securities or other investments or any options, futures, derivatives or other instruments related to such securities or investments. In particular, it is highlighted that this report is not intended for nor does it have regard to the specific investment objectives, financial situation and particular needs of any specific person who may receive this report. Investors are therefore advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situations and particular needs and consult their own professional advisers (including but not limited to financial, legal and tax advisers) regarding the appropriateness of investing in any securities or investments that may be featured in this report. Alliance Research, its directors, representatives and employees or any of its affiliates or its related parties may, from time to time, have an interest in the securities mentioned in this report. Alliance Research, its affiliates and/or its related persons may do and/or seek to do business with the company(ies) covered in this report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell or buy such securities from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies) as well as solicit such investment, advisory or other services from any entity mentioned in this report. AIBB (which carries on, inter alia, corporate finance activities) and its activities are separate from Alliance Research. AIBB may have no input into company-specific coverage decisions (i.e. whether or not to initiate or terminate coverage of a particular company or securities in reports produced by Alliance Research) and Alliance Research does not take into account investment banking revenues or potential revenues when making company-specific coverage decisions. In reviewing this report, an investor should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the overriding issue of confidentiality, available upon request to enable an investor to make their own independent evaluation of the information contained herein. Published & printed by: ALLIANCE RESEARCH SDN BHD (290395-D) Level 19, Menara Multi-Purpose Capital Square 8, Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia Tel: +60 (3) 2692 7788 Fax: +60 (3) 2717 6622 Bernard Ching Email: allianceresearch@alliancefg.com Executive Director / Head of Research