Investment Highlights

• We maintain our HOLD recommendation on Media Prima (MPR) with a lower fair value of RM0.22/share (previously RM0.39/share), based on an FY19 BVPS of 53.92 sen and pegged to a lower PB ratio of 0.4x, which represents a discount to its 1-year historical PB of 0.6x. This is in light of the difficulty in monetizing its digital initiatives amid the structural change towards digital content.

• We reduce our FY20F–FY21F loss forecasts after adjusting our balance sheet assumptions to reflect FY19 changes and now forecast losses of -RM71mil for FY20F and -RM49mil in FY21F.
• MPR’s 4QFY19 core profit of RM11mil beat expectations, bringing FY19 core loss to -RM63mil. This is after stripping off one-off losses amounting RM115mil which were mainly from: (i) termination benefits of RM75mil; (ii) PPE impairment of RM24mil; and (iii) goodwill impairment of RM17mil. The actual FY19 core loss was lower vs. ours and consensus’ fullyear loss estimates of -RM95mil and -RM96mil respectively.
• FY19 core loss narrowed to -RM63mil (vs -RM101mil in FY18) despite higher depreciation and taxation, largely due to lower operating expenditure and savings arising from the group’s cost-rationalization initiatives. Meanwhile, revenue declined by 7% amid still-weak adex causing revenue declines in traditional media segments i.e. TV, radio, out-of-home and publishing.

• Segmental analysis:

• TV: Revenue fell 8% due to lower free-to-air (FTA) TV adex take-up rates but LBT narrowed from to -RM24mil from -RM113mil due to cost-savings from its tonton platform democratization and manpower rationalization exercises.
• Radio: Weak adex and growth of digital marketing options caused revenue to fall by 29%, causing the segment to record an LBT of RM4mil vs. PBT of RM9mil in FY18.
• Publishing: On top of lower newspaper adex, the segment was also impacted by dwindling circulation which declined by 13% causing the segment to plunge into an LBT of -RM113mil vs PBT of RM143mil.

• Out-of-home (OOH): Lower occupancy for static panels and cautious ad-spend caused revenue to dip by 8%, leading PBT to tumble by 69%. The group said that 70– 80% of its inventory are static panels. However, some of its static panels have undergone asset premiumization and the group is seeing a pickup in interest for BigPlus
• Digital: Revenue rose 6%, particularly fuelled by its media venture business comprising licensed and exclusive reseller products with Mashable, Vocket, IGN, etc. However, PBT declined by 84% due to lower shared service revenue.
• Home Shopping: LBT widened due to higher costs amid increased production demands, despite revenue rising 8% as more home shopping slots on ntv7 and Channel 9 were added.

• Updates from analyst briefing:

• Odyssey journey: Odyssey revenue (from commerce and non-advertising sources, and digital initiatives) contribution rose to 29% in FY19 from 14% in 2017, with more than RM300mil revenue generated annually. Some key success stories include: (i) growth in commerce shown by CJ Wow Shop contribution that is currently 21% of total revenue, (ii) expanded digital portfolio through RevAsia and its radio segment Ripple; and (iii) exclusive reseller partnerships with valuable digital brands such as Mashable, IGN, Vocket, Tantannews and Technave.

• Integrated solutions via Media Prima Omnia Sdn Bhd: Using resources from existing sales team, the group will offer integrated solutions from the New Straits Times Press, its TV segment, Ripple, and integrated marketing as a package to advertisers. This will help MPR by providing a better way of selling inventory and allow clients to move away from costefficiency driven choices and instead choose a more holistic advertising approach.

• Optimizing print capacity utilization through Print Towers Sdn Bhd: The new entity not only prints for its in-house requirement, but also does external commercial printing with secured business from the likes of The Malaysian Reserve, Selangor Kini and Buletin Mutiara. Utilization rates have improved to around 70–80% currently from less than 50%.
• Outlook: MPR still expects a challenging operating environment particularly for its traditional media segments, however the group believes its stronger digital presence would help partially offset declines in earnings. Nevertheless, the group acknowledges that global uncertainties and the coronavirus disease 2019 (Covid-19) outbreak will delay its earnings recovery.
• We are still cautious on Media Prima’s near-term outlook and recommend a HOLD amid a challenging operating environment, coupled with the difficulty in monetizing its digital initiatives and still-declining traditional media segments. However, we are positive of its cost-rationalization initiatives such as its recent manpower rationalization exercise in 4QFY19 which the group expects to bring about RM80mil cost savings annually.

Source: AmInvest Research - 27 Feb 2020