Investment Highlights

• We downgrade our call on Media Prima (MPR) to a HOLD from BUY due to a recent run-up in share price. We have a higher fair value of RM0.52/share, pegged to a higher PB ratio of 1.0x as we believe there is no further erosion in asset value (previously RM0.25/share, PB 0.5x).

• We now project MPR to return to the black from FY21F onwards as we believe that its strict cost controls coupled with growing commerce and digital revenues might be able to offset declines in traditional media segments. Furthermore, adex sentiments might recover once Covid- 19 vaccinations are rolled out.

• MPR’s results exceeded expectations, recording a 4QFY20 core profit of RM25mil, bringing FY20 to a core profit of RM7mil. This is after excluding an RM25mil net exceptional loss mainly from termination benefits and impairment charge on financial instruments. The results were better than expected vs. ours and consensus FY20F projected losses of RM9mil and RM27mil respectively.

• YoY: FY20 core profit returned to the black (vs. RM61mil core loss in FY19), despite revenue declining as the group’s cost-optimisation initiatives led to lower operating expenses. Revenue fell 6% as Covid-19 related restrictions had caused weakened adex sentiments which particularly impacted MPR’s broadcasting and publishing segments. Declines in revenue across all segments were partially offset by increases in digital and home shopping revenues.

• QoQ: 4QFY20 revenue and core profit continued to increase, rising by 55% and 10% respectively due to higher adex during the quarter which saw Omnia revenue increasing by 27%. Furthermore, a larger exceptional loss of RM6mil was stripped off in 4QFY20 (vs loss of RM4mil in 3QFY20).

• Updates: MPR has formed a strategic commercial collaboration with the Ministry of Education to run DidikTV KPM, an educational TV programme to increase the access of education to students nationwide, given MPR’s reach. The group’s ntv7 channel will be used for the programme, which began on 18 February 2021. The collaboration is expected to have a positive impact to its bottom line, as the initiative is likely to be a long-term collaboration, estimated to take about 1 year to build up.

• FY21 outlook: MPR will continue to operate in a challenging environment due to uncertainties relating to Covid-19, the structural shift to digital ad spend, and increased competition in the industry. To address these challenges, the group will embark on targeted initiatives such as increasing non-advertising revenue and those in line with consumption trends, while continuing to defend its traditional business earnings. 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 fairly valued at its current price.

Source: AmInvest Research - 26 Feb 2021