Investment Highlights

• We maintain HOLD on Media Prima (MPR) with a lower fair value (FV) of RM0.38/share (from RM0.39/share previously) on lower earnings estimate but based on an unchanged FY24F target P/E of 8.6x, in line with peers, and 3% premium for MPR’s 4-star ESG rating.

• MPR’s 1QFY23 core net profit (CNP) of RM1.4mil (after adjusting for exceptional items), was below expectations, accounting for only 3% of our earlier FY24F earnings and 4% of consensus’.

• Hence, we trim our FY24/FY25 earnings by 10% on lower content sales and higher advertising cost amid weak consumer sentiments. MPR recently changed its financial year-end to June from December.

• YoY, MPR’s 1QFY24 core net profit (CNP) plunged to RM1.4mil (excluding net reversal of impairment of financial instruments of RM6mil, gain on disposal of investment properties of RM4mil and insurance claim of RM2mil) from RM6.5mil in the quarter ended 30 Sep 2022.The deviation was due to decline in content sales (-66% YoY), and home shopping revenue (-39% YoY). We believe the substantive decline in content sales was due to global over-the-top (OTT) platforms rationalising content investments.

• Sequentially, MPR’s 1QFY24 CNP fell 92% to RM1.4mil from RM18mil in the immediately preceding quarter on a 4% revenue decline and halving of EBITDA margin to 11%. The decrease was mainly due to sustained losses from home shopping, which registered a 20% QoQ revenue decline to RM21mil in 1QFY24. We also saw flattish QoQ advertising revenue due to lack of stimulus and prolonged weak consumer sentiments.

• On a positive note, the group’s print media segment recorded an 11% revenue increase to RM32mil 1QFY24 from RM29mil in the immediately preceding quarter. This is in line with Nielsen’s adex data showing recovery in newspaper segment by 6% for Jul-Aug 2023.

• We expect earnings for the coming 2QFY24 to be stronger, backed by a handful of festive events such as Christmas and New Year celebrations together with higher year-end utilisation of marketing budgets by advertisers.

• Nevertheless, we expect the home shopping segment to continue to incur losses in the near-to-medium term. Despite MPR’s effort to reach younger audiences through TikTok shop, this segment’s prospects remain challenging due to intense competition from leading online shopping platforms such as Shopee and Lazada.

• Looking ahead, we forecast an adex growth of 5% in 2025F-2026F contributed by Out-of-Home (OOH) advertising against the backdrop of higher foot traffic vs. Covid-19 pandemic period.

• We continue to like MPR for its innovative and creative ventures. This is reflected through MPR’s in-house engineers who have implemented artificial intelligence (AI) in radio broadcasting with 2 AI-powered DJ namely Aina and Aidil. The production cost is minimal as it is produced by insourced software. We view this could positively attract curious audiences and create new job opportunities for software engineers.

• The group also focuses on a 3-year business plan, guided by 3 growth pillars - content boost, inventory premiumisation and exploration of new revenue streams to drive business sustainability as a leading integrated media company.

• A rerating catalyst could be the introduction of the government’s bill on return of advertising expenditure as suggested by Malaysian Communications and Multimedia Commission (MCMC). The bill is to ensure internet giants like Alphabet Inc's Google and Meta Platforms’ Facebook compensate local news outlets for content sourced from them.

• Such a bill has been implemented in Australia, where Google and Facebook agree to pay AS$220mil compensation to the country’s media groups in 2022. If enacted also in Malaysia, it would level the playing field between international internet giants and local media groups.

• We view MPR as fairly valued at 10x FY24F PE, near its 5-year average of 11x with a choppy earnings record.

Source: AmInvest Research - 30 Nov 2023