Highlights

Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Mon, 18 Nov 2019, 4:21 PM

 

Media Prima - One Company’s Loss May be Another’s Gain

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Utusan Malaysia, the nation’s oldest and leading Malay language daily, ceased operations effective 9 October. In light of this unfortunate event, we believe Media Prima could stand to gain as the group’s publications, Berita Harian and Harian Metro, would be seen as close substitutes for readers. Assuming a 10-30% shift in readership to MPR’s publications, we expect a potential uplift in earnings to the tune of 5-10% over FY19-21E. Nevertheless, we keep our forecasts unchanged for now, pending further visibility on the shift in readers’ preferences. Maintain SELL with an unchanged TP of RM0.38.

Utusan Ceasing Operations Effective 9 October 2019

Both of Utusan Melayu Bhd’s (“Utusan”) Malay Language Publications, Utusan Malaysia and Kosmo! have officially ceased operation, effective 9 October 2019. This comes after a prolonged cash crunch that saw Utusan’s employees staging protests over unpaid wages in late August 2019. As at 9 October, employees from both Utusan Malaysia and Kosmo! were told to vacate their workstations with immediate effect. Both publications have long been the leading Malay language dailies in Malaysia, with daily hardcopy circulation of 97k and 136k respectively as at 2H18, according to Audit Bureau of Circulation Malaysia.

Potential Shift Towards Reading MPR’s Malay-language Publications

In light of this unfortunate event, we believe Media Prima (“MPR”) could potentially stand to gain some ground at the expense of Utusan given MPR’s publications are seen to be close substitutes. Media Prima has two Malay language dailies in its stable, namely Berita Harian and Harian Metro. In terms of daily hardcopy circulation, MPR’s Malay language dailies fall behind Utusan, commanding daily circulation of 63k and 86k as at 2H18, respectively.

Aurora Mulia Acquires Ownership in Utusan’s Printing Licenses

Meanwhile, it is worth noting that MPR’s major shareholder, Aurora Mulia, had a day earlier prior to the cessation news taken up a 70% stake in Utusan’s subsidiary, Dilof Sdn Bhd (“Dilof”). Dilof currently holds the permits for publication of Utusan’s two newspapers, i.e., Utusan Malaysia and Kosmo! As quoted by the Edge, Utusan’s executive chairman Datuk Abdul Aziz Sheikh Fadzir believes the cessation could be temporary and expects Aurora Mulia to relaunch publications in the near future.

Cessation of Utusan = Opportunity for MPR?

Based on our estimates, a 10-30% shift in readership/circulation toward MPR could lead to MPR’s losses narrowing to the tune of 5-10% for FY19- 21E. The assumption takes into account an increase in contributions from both circulation as well as advertising revenue. In tandem with the rise in readership, we expect advertising revenue to similarly see an uptick.

Maintain SELL With An Unchanged TP of RM0.38

Assuming readers were to shift over to MPR’s publications, we could potentially see losses narrowing from our current projection of RM82m/55m/40m over FY19-21E. We keep our forecasts unhanged for now, pending further visibility on the shift in readers’ preferences. We reiterate our SELL rating with an unchanged TP of RM0.38, based on 1.5x (1SD below 3-year average) 2020E NTA per share. Barring any significant restructuring exercise, we maintain our cautious stance given the persistent challenging operating environment.

Key Risks

The upside risks to our call would be: 1) major restructuring plans to be implemented by the new substantial shareholder, 2) MGO is triggered, 3) higher-than-expected adex revenue; 4) a substantial increase in hardcopy newspaper circulation and 5) an upward spike in contributions from digital and consumer-based businesses.

Source: Affin Hwang Research - 10 Oct 2019

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