Investment Highlights

• We upgrade our HOLD recommendation on Media Prima (MPR) to BUY, with a higher fair value of RM0.80share, pegged to an FY22F PE of 14x (previously RM0.52/share pegged to a PB of 1.0x).

• Our target PE is in line with that of its regional peers, which have a weighted-average forward PE of 14x. We have also reflected a 3% premium to its share price to reflect a 4-star ESG rating as appraised by us (Exhibit 3).

• We raise our FY21F–FY23F forecasts by 93–207% (coming from a lower base of net profit forecasts) to account for better margins across the board due to its lower operating expenditure moving ahead.

• Key takeaways from a recent engagement with the group are as follows:

• Continuing digital and commerce strategies:
  • Home shopping momentum to continue postpandemic: In FY20, MPR’s fully-acquired home shopping business WOWSHOP contributed 30% of the group’s revenue as sales grew by 33% YoY due to a shift in consumer spending habits towards ecommerce mobile commerce (ECMC) platforms and due to higher viewership, particularly during the movement control order (MCO). Net profit of RM10mil was recorded vs. RM11mil loss in the previous year. We believe that the momentum of WOWSHOP is likely to be sustained post-pandemic due to its digital transformation towards ECMC, driven by a multiplatform strategy. WOWSHOP has 2.3mil registered customers where 33% of them are new customers secured in 2020.
     
  • Synergies to continue from Rev Media: In July 2020, MPR rebranded Media Prima digital and REV Asia as Rev Media Group to further streamline business processes and realize further synergies. In FY20, digital contributed 5% of group revenue after growing 10% YoY.
     
• Optimistic of Omnia proposition: Effective 1 April 2020, the group redefined its operating segments where advertising-related solutions from broadcasting, publishing, branded content and digital media (October 2020 onwards) are consolidated under Omnia, which improves operational efficiency and acts a one-stopcenter for clients. In FY20, Omnia was the largest contributor to group revenue at 37%.

We are optimistic of Omnia’s potential due to positive feedback received from MPR clients thus far and as it is poised to benefit from further adex recovery due to expectations of better consumer sentiment following the gradual rollout of Covid- 19 vaccinations and resumption of offline events. Since the easing of MCO restrictions, industry adex has been recovering continuously, as seen in Exhibit 4.

• MPR’s free-to-air (FTA) TV exposure to benefit from adex recovery: Over the years, as newpaper adex contribution in the market continued its steep decline due to the structural change towards digital alternatives. FTA TV contribution has increased to 62% in 2020, overtaking newspapers as the main contributor to the adex market in recent years (Exhibit 5). We believe that MPR’s 35.7% command of audience share in the FTA TV market bodes well for the group as it is primed to benefit from a recovery in adex due to its bigger share of the market particularly for TV3 and 8TV (Exhibit 6).

Note that Drama Sangat is also under MPR but airs reruns of Malay drama series from TV3, NTV7, and 8TV and local Chinese drama series from NTV7 and 8TV. Drama Sangat was MYTV’s most watched channel in 2020. Additionally, MPR’s recently announced strategic commercial collaboration with the Ministry of Education to run a dedicated educational channel, DidikTV KPM, is also expected to have a positive impact on the group’s bottom line, due to the potential positioning of advertising slots between the education programmes throughout the day.

• Improve defence strategies for traditional media platforms: The group will continue to maintain and improve the performance of its traditional media platforms i.e. publishing and broadcasting segments. For the print segment, MPR’s Print Towers is able to generate revenue and optimize printing plant capacity as it does external commercial printing for The Malaysian Reserve, Utusan Malaysia, Kosmo!, SelangorKini, Selangor Journal and Buletin Mutiara in addition to its in-house titles New Straits Times, Berita Harian and Harian Metro.
• Improve efficiencies and continue to optimize costs: The group conducted two phases of group-wide manpower rationalization in 2020, reducing its workforce by 37% to 2,332 employees as at 31 December 2020. Its cost optimization initiatives and strict cost controls during the Covid-19 pandemic has led to the group achieving two profitable quarters despite the weaker adex impacted by Covid-19 and various MCO measures enforced which dragged revenues lower. FY20 overheads were reduced by 24% YoY compared to 2019. We believe that its cost-saving initiatives will continue to boost MPR’s operational efficiency moving forward.
• Overall, we are optimistic on MPR being a stronger recovery play in the media sector, given its: (i) strategies in home shopping and digital initiatives; and (ii) potential for Omnia to benefit strongly from adex recovery, as well as potential benefits from better monetization of its extensive reach across different segments.

Source: AmInvest Research - 6 Apr 2021