Media Prima (MPR) recorded FY19 revenue of RM1,106m (-6.7% YoY) and a headline net loss of RM185.4m. The weak set of results was mainly due to (i) one-off impairment of property/plant/equipment and goodwill amounting to RM41.1m and (ii) one-off termination cost incurred for its manpower rationalization exercise of RM75m. After adjusting for these exceptional items, full-year core net loss was still RM61.8m, above our and consensus’ full-year estimates. In view of traditional mediums continuing to be affected by declining advertising expenditures (adex) and dwindling newspaper circulation, as well as the structural shift towards the digital space, we lower our earnings estimates for FY20F-FY21F by 27%-39% respectively to account primarily for lower income. Our TP is consequently revised down to RM0.20 (RM0.28 previously) as we ascribe a 0.5x P/BV multiple on its 3-year average forward rolling book value of RM0.40, which we believe sufficiently accounts for foreseeable trough valuations. Potential downside risks to our TP may however come from further impairment on goodwill as well as additional provisions with regards to cost rationalization efforts which may potentially affect the group’s book value. Maintain Neutral.

• 4QFY19 revenue increased by 4.6% YoY due to the higher adex spend in the TV (+3.4% YoY) and digital segment (+7.6% YoY), slight increase in home shopping (+1.8% YoY), higher circulation revenue in the Print segment (+16.5% YoY) as a result of less competition (as Utusan ceased publication), as well as a strong growth in Content Creation segment (+162.5% YoY). Strong growth in the latter was mainly attributable to the success of the Ejen Ali movie which grossed over RM30m. However, revenue growth was partially mitigated by the decline in Radio (-24.7% YoY) and Outdoor media (-10.7% YoY).

• 4QFY19 core net profit. The group’s traditional media segment, TV, Radio and Print recorded losses after tax (LAT) of RM3.5m, RM0.8m and RM57.6m respectively. Meanwhile, Outdoor media declined by 69% YoY to RM3.8m due to lower occupancy on static panels and cautious spending by advertisers. As for new initiatives, the digital segment slipped into a LAT of RM2.2m while the Home Shopping segment recorded wider LAT of RM1.7m. On the flip side, Content creation segment turned profitable for the current quarter on the back of lower content production cost and successful blockbuster release. Cumulative core net profit for the quarter was RM11.6m.

• On manpower rationalization exercise. We understand from management that the on-going cost rationalization exercise is expected to see about 25% of its existing staff force (approximately 900 staff) displaced. Post-restructuring, MPR’s total workforce is expected to reduce to 2700 staff, potentially providing annual cost savings of RM80m.

• Moving forward. As MPR continues to embark on its transformation journey, the group is looking to strategize itself as the nation’s only fully integrated media group given its extensive reach via traditional and digital medium therefore offering solutions to ad spenders. According to Nielsen Media Research, total adex expenditure in Malaysia for FY19 declined by 11.4% YoY. We opine that the outlook for MPR remains challenging as advertisers will likely remain cautious on adex expenditure in light of the slower global economy growth as well as the negative impact of Covid-19 on the Malaysian economy.

Source: PublicInvest Research - 27 Feb 2020