Investment Highlights

• We maintain our HOLD recommendation on Media Prima (MPR) with a lower fair value of RM0.39/share (previously RM0.42/share) pegged to a P/B of 0.6x after cutting FY19F– FY21F earnings as we account for a sharper deterioration in adex across traditional segments and a larger decline in circulation revenue for its publishing segment.

• MPR registered a wider core loss of RM37mil in 1QFY19 compared with 1QFY18’s core loss of RM20mil albeit narrower than 4QFY18’s core loss of RM45mil. The disappointing results exceeded our full-year projected loss of RM25mil and consensus’ projected full-year loss of RM34mil.
• 1QFY19 core loss worsened by 87% compared with the previous year, in tandem with a drop in revenue of 15%​​​​​​​ amid weaker revenue contribution across all segments save for its home shopping segment and mainly due to a decline in industry-wide adex and newspaper sales. Furthermore, the group shared that 1QFY18 also benefited from adex spend related to GE14.
• Continuously softer adex affects traditional media segments: TV and radio segment revenue declined by 12% and 35% respectively due to the subdued adex environment affecting take-up rates whilst publishing revenue also fell by 41% amid lower advertising revenue (-29%) and newspaper sales (-30%).
• Out-of-home (OOH) and digital segments not spared from weaker performance: MPR’s OOH revenue slid 4% amid lower occupancy on static rollouts while digital revenue tumbled 20% due to lower contribution from digital adex, social media and digital marketing revenue.

• Home shopping the only segment to record positive turnover growth: CJ WoW Shop revenue rose 24% due to greater exposure from dedicating more hours on home shopping slots on NTV7 and Channel 9, which translated to higher net sales, where sales via mobile contributed 31% of sales (+12% YoY) and TV 62% of sales (-12% YoY) while internet sales were unchanged at 7%.

• Outlook ahead: MPR anticipates better performance in 2QFY19 on expectations of: (i) adex pickup due to Hari Raya advertising; (ii) some cost savings from manpower rationalization expected to materialize during the quarter; and (iii) recovery in the economy to improve adex sentiments.

• We reiterate our HOLD recommendation on MPR as it continues to face a challenging operating environment for its traditional media segments due to: (i) a hazy operating environment expected for its TV segment upon the analogue switch-off (ASO) by 3QCY19; (ii) declining newspaper circulation due to the structural shift to digital content; and (iii) subdued adex outlook ahead.

Source: AmInvest Research - 31 May 2019