Investment Highlights

• We maintain our HOLD recommendation on Media Prima (MPR) with an unchanged fair value of RM0.39/share, pegged to a P/B ratio of 0.6x.

• We lower our FY19F–FY21F earnings forecasts to account for wider losses as traditional segments continue to struggle in light of the challenging operating environment amid weakened consumer sentiments. We think that 2HFY19 might also continue to see soft adex due to a lack of major catalysts.

• MPR registered a core loss of RM10mil in 2QFY19, bringing 1HFY19 core loss to RM47mil, after stripping off one-off losses of RM6mil mainly from a net loss on impairment on its financial instruments. The 1HFY19 results were disappointing against our full-year projected loss of RM85mil and consensus’ estimates of an RM56mill loss in FY19.
• 1HY19 core loss doubled YoY after excluding one-off gains of RM33mil in 1HFY18 which was mainly from gain on sale of shares in an associate of RM45mil. This was despite a decline in operating expenses by 11% YoY. Group revenue tumbled 14% amid weaker revenues seen across all of MPR’s segments except for its home shopping segment due to stillsoft adex sentiments. Furthermore, 1HFY18 had benefited from higher adex spend related to GE14.
• Lower adex take-up rates continue to plague its TV, radio and publishing segment revenues in 1HFY19 which fell by 15%, 34% and 34% respectively. For MPR’s publishing segment, newspaper advertising revenue declined by 27%, circulation revenue dropped by 30%, while the radio segment recorded an LBT for 1HYF19 due to the weaker adex revenue. On the plus side, the TV segment benefited from better cost management due to lower content costs, benefits from content democratization and manpower rationalization implemented in 1QFY19 which caused LAT to narrow by 59% YoY.

• Digital segment revenue slid 1% YoY in 1HFY19 but after excluding the one-off seasonal spending in 1HFY18, revenue actually grew by 13% due to its media venture business revenues from licensed and exclusive reseller products. Segment PATMI slipped by RM5mil YoY due to lower shared service revenue with regards to tonton’s service costs post-content democratization, which declined ~40% YoY.

• Meanwhile, the out-of-home (OOH) segment performance weakened due to lower occupancy rates on static panels coupled with cautious adspend. However, on the digital front, Big Tree recorded a high occupancy rate of 85% for its digital OOH inventory in 1HFY19 (5ppts higher than in 1HFY18).

• The home shopping segment continued to show positive progress with revenue rising 19% due to greater exposure from the addition of more shopping slots on ntv7 and Channel 9. However, LBT widened due to higher costs associated with increased production demands. The group wishes to focus on sales via electronic commerce & mobile commerce (ECMC) channels as it believes that TV sales will reach a saturation point. CJ Wow Shop’s sales split was 59% via TV and 41% via ECMC in 1HFY19 (vs. TV: 73%, ECMC: 27% in 1HFY18).

• On a QoQ basis, 2QFY19 revenue soared 24% while LAT narrowed by 75% vs. the previous quarter due to higher adspend associated with the Hari Raya festive season which saw revenues improving across almost all of MPR’s segments.

• We reiterate our HOLD recommendation on MPR as it continues to face a challenging operating environment for its traditional media segments, despite positive results seen from its digital and commerce segments relating to its Odyssey transformation strategy. The risks faced by the group are as follows: i) hazy operating environment for its TV segment upon the analogue switch-off targeted by September 2019; (ii) no end to declines in newspaper circulation yet as customer preferences shift towards digital content; and (iii) continued weak adex sentiments in Malaysia affecting take-up rates across all adex-related segments.

Source: AmInvest Research - 23 Aug 2019