Investment Highlights

• We maintain our HOLD recommendation on Media Prima (MPR) with an unchanged fair value of RM0.22/share pegged to a PB ratio of 0.4x. We lower our FY20F–FY22F forecasts to account for deferments in ad bookings due to Covid-19 uncertainties.

• MPR registered a core loss of RM29mil in 1QFY20, after stripping out an exceptional net loss of RM0.6mil from forex loss and loss on impairment of financial instruments. We consider the results to be below expectations against our previous full-year FY20F estimate of a RM71mil core loss and consensus estimates of a RM38mil loss.

• YoY: 1QFY20 core loss narrowed vs. 1QFY19’s core loss of RM37mil due to cost-saving initiatives by MPR where group overheads were reduced by 11%. 1QFY20 revenue declined marginally as higher digital and home shopping revenues were offset by declines in TV, radio, out-of-home (OOH) and publishing due to weaker adex and the Covid-19 impact on the economy. Advertising revenue fell 10%, while non-advertising revenue (i.e commerce and circulation) grew 22% in 1QFY20.

Segmental analysis

• TV: Cost-minimizing efforts such as a reduction in TV overheads by 17% helped narrow LBT to RM14mil in 1QFY20 from RM21mil in 1QFY19, despite TV revenue falling 9% due to softer adex. According to Nielsen, MPR TV networks commanded 36% of total audience share and 49% of prime time audience share in 1QFY20.
• Radio: Losses widened to RM5mil from a RM0.7mil LBT in 1QFY19 due to revenue plunging 56% amid lower adex take-up and as digital marketing options for advertisers grew.

• OOH: PBT fell 4% due to revenue sliding 3% amid cautious adex spend and lower occupancy on static panels.

• Publishing: Revenue dropped 10% due to lower traditional advertising revenue despite circulation revenue rising 12%. Meanwhile, LBT narrowed due to the group’s cost optimization efforts i.e. 20% lower overhead costs YoY.

• Digital: Revenue rose 50% mainly from higher digital advertising and media ventures revenue. However, the segment slipped into an LBT of RM0.1mil (vs. PBT of RM0.1mil in 1QFY19) on low internal shared service revenue and higher operating costs.
• Home Shopping: Revenue climbed 18% leading to a PBT of RM0.1mil (vs. RM4mil LBT in 1QFY19) due to successful promotional activities and better slots planning. New registered customers grew 13% to 151K while 44% of home shopping sales in 1QFY20 were contributed by web and mobile platforms with the remaining 56% by TV sales. On another positive note, 1QFY20 marks the first quarter CJ Wow Shop reached breakeven.
• Movement control order (MCO) trends: Since the MCO was announced in Malaysia to contain the spread of Covid-19 on 18 March 2020, MPR has seen higher engagement across its TV, digital and home shopping segments. TV viewership surged 31% since pre-MCO, its news sites i.e. New Straits Times, Berita Harian, Harian Metro, OhBulan, Says had maintained the highest combined traffic during the MCO vs. other local media groups, and there had been increased buying from home and a spike in orders during TV3 and 8TV’s CJ Wow Shop slots.
• Outlook: We expect a lack of adex catalysts for the year coupled with the Covid-19 impact on business to trickle down and affect media companies negatively. However, savings from cost optimisation efforts such as the case of MPR will cushion the impact of Covid-19 on earnings. Historically, 1Q earnings are seasonally weaker for media companies, with 2Q being the strongest likely due to promotional activities relating to festivities. We also gather that ad bookings have been deferred for media companies due to the Covid-19 pandemic.

• Maintain HOLD on MPR as we remain cautious due to its lacklustre outlook amid a challenging operating environment of soft adex coupled with Covid-19 uncertainties. Nevertheless, we are positive of its progress in its digital and commerce segments as well as its cost rationalisation initiatives which will help to cushion decline in earnings.

Source: AmInvest Research - 22 May 2020