We attended Media Prima (MPR)’s Inside Out event recently and came away with a neutral view. We are positive on MPR’s continuous efforts to diversify its revenue streams and reduce its dependency on traditional media revenue. However, we foresee the effort by MPR possibly taking a relatively long time to bear fruit, as the new business initiatives implemented to diversify its revenue portfolio is expected to remain in gestation in FY17. Though the revenue contributions from the new initiatives may be able to slightly cushion the declining adex, we believe that the contribution to bottom-line would be insignificant in the near term due to the start-up costs and long gestation phase. Hence we think soft adex sentiment, costs of new initiative and long gestation phase would remain the key concerns for MPR in the near term. We maintain our earnings forecast and TP of RM1.00 pending 1QFY17 results, which will be released on 29th May 2017. Our Neutral call remains.

• A change to stay relevant. Recall that MPR has incurred RM35m start-up losses of new initiatives and RM98m impairments on closure of 2 printing plants in FY16. The group fell into the red for the first time in FY16, resulting in a net loss of RM59m. Adjusting for this exceptional, FY16 core net profit stood at about RM74m (-46.6% YoY). The challenging operating environment has forced MPR to explore opportunities to diversify revenue while continuously reviewing its cost structures, implementing cost rationalization initiatives and embarking on a new transformation plan.

• Expanding revenue base. MPR has introduced its Odyssey transformation plan to defend its existing business and expand into new revenue streams. The group plans to expand its non-advertisement revenue and non-TV and print revenue from 20% to 40%, grow its revenue contribution from outside Malaysia to 10% (from 2% currently) and expand its digital revenue from 5% to 20% by 2020. The group believes that tonton best represents its Odyssey strategy, adding that tonton’s partnership with Singtel and the plan to penetrate into another Southeast Asia country (by this year) has shown its effort in expanding its revenue beyond Malaysia. In addition, the group has identified six key pillars as the foundation to achieve its targets in expanding its new revenue streams: (i) maintain its market leader position in broadcast and tonton, (ii) to be market leader in digital publishing, (iii) grow commerce through integrated media, (iv) expand beyond Malaysia, (v) maximize current value by developing strong branding and providing creative solution to advertisers and consumers, and (vi) increase productivity and efficiency by reviewing its business operations and maximizing automation.

• Attractive yield. On a positive note, MPR’s dividend policy (to distribute 60-80% of PATAMI) is expected to remain unchanged. MPR has declared a total 8 sen dividend for FY16, translating to an attractive yield of c.7%

Source: PublicInvest Research - 19 May 2017