Investment Highlights

• We upgrade Media Prima (MPR) to BUY from HOLD with a higher fair value of RM0.25/share, pegged to a higher PB ratio of 0.5x (previously RM0.22/share, PB 0.4x) after reflecting the group’s latest 3QFY20 book value per share (BVPS) of RM0.50. The higher PB ratio which is at a +1.5SD premium to its 1-year historical PB of 0.35x, premised upon our belief that the group is seeing benefits from its previous Odyssey transformation plan to grow commerce and digital revenues.
• We narrow our FY20F–FY22F loss projections amid better margin assumptions across the board following realization of cost savings and better-than-expected recovery post-MCO.
• MPR’s results exceeded expectations, recording a core profit of RM16mil in 3QFY20 which brings 9MFY20 core loss to RM18mil. This is after excluding a RM19mil net exceptional loss from termination benefits and impairment charge on financial instruments. The 9M results accounted for 29% and 27% of our and consensus FY20F projected loss of RM62mil and RM68mil respectively.
• YoY: 9MFY20 revenue declined 7% due to lower advertising and circulation revenue impacted by Covid-19 which was offset by higher commerce revenue (Exhibit 2). However, core loss narrowed by 74% as lower operating expenses were able to offset revenue declines and after the exclusion of a larger one-off loss which includes RM11.3mil termination benefits. MPR’s overheads were reduced by 18% due to its cost-optimization initiatives.
• QoQ: MPR returned to the black, recording a core profit of RM16mil (vs. RM6mil core loss in previous quarter) even after the exclusion of a larger exceptional loss in 2QFY20 (due to the termination benefits charge incurred during the quarter) on higher revenue and disciplined cost optimization. 3QFY20 revenue rebounded by 14% following the easing of MCO restrictions with the enforcement of the recovery MCO since 10 June 2020, mainly driven by a recovery in broadcasting adex.
• Home shopping updates: Following MPR’s full acquisition of the home shopping business, the group has rebranded the business to WOWSHOP. To date, WOWSHOP contributes 31% of 9MFY20 revenue supported by its digital transformation to e-commerce mobile commerce (ECMC) which currently represents 53% of home shopping sales. With 2.3mil registered customers, WOWSHOP also leverages Media Prima TV Network’s success with a total audience share of 36% and 49% prime time audience share on TV3 from January to September 2020.
• Outlook: MPR remains cautious on its 4Q performance given uncertainties relating to the pandemic. The group has seen increased demand for digital advertising and advertiser content under Omnia, and with the strong performance of WOWSHOP, MPR will continue to enhance users’ home shopping experience. The group will also continue to improve its operational efficiencies ahead in order to optimize its costs.
• Despite the challenging operating environment, we believe that MPR’s commerce and digital propositions continue to gain traction and are able to cushion declines in traditional adex and circulation. Coupled with its new Omnia proposition for bundling advertising-related solutions as well as benefits seen from its cost optimization initiatives, we believe that the stock is undervalued at the current price, hence we upgrade our call to BUY.

Source: AmInvest Research - 19 Nov 2020