Investment Highlights

• We downgrade Media Prima (MPR) from HOLD to SELL with a lower DCF-derived fair value of RM0.60/share (previously RM0.92/share) following disappointing 3QFY17 results. We are now projecting core losses for FY17F and FY18F as ailing prospects of the print and TV segments continue to weigh on earnings.

• We do not expect the group to return to the black until FY19F, when digital revenue eventually becomes significant enough to counter the declines in traditional adex. Net revenue contribution from digital businesses remains inconsequential at circa 0.6%.

• MPR's 3QFY17 results came markedly below expectations with a core net loss of RM50mil. This brings 9MFY17 to RM80mil in losses, versus our full-year forecast of -RM13mil and consensus estimate of RM14mil. Note that we have stripped out one-off items amounting to -RM51mil recorded during the quarter, which was largely associated with an early retirement scheme (ERS) offered to some 217 employees (~5% of headcount).

• The precipitous drop in 3Q earnings was led by lower advertising revenue in the TV and print segments, exacerbated by start-up losses from the group's business transformation initiatives. These initiatives include CJ WOW SHOP, Tonton and Studio 8.

• We expect the group to remain in the red the next quarter in the absence of catalytic events that were present in 2Q, such as the 2017 SEA Games. In addition, management has indicated that there is a probability of more kitchensinking exercises in the coming quarters.

• We estimate cost savings of RM22mil/year from the ERS, RM14mil/year from the closure of East Malaysia print operations and RM10mil/year from a disposal a lossmaking associate company (Malaysian Newsprint Industries). These items, coupled with revenue growth in the out-of-home, radio and digital segments, are expected to narrow MPR's losses in FY18F.

• Our SELL call is premised on the following considerations: (1) rapid decline in newspaper circulation owing to the availability of digital content; (2) subdued adex outlook against the backdrop of weak consumer sentiment; and (3) uncertainties arising from imminent analogue switch-off.

Source: AmInvest Research - 30 Nov 2017