Investment Highlights

• We maintain SELL on Media Prima (MPR) with a lower DCF-derived fair value of RM0.50/share (previously RM0.60/share), based on an unchanged discount rate of 9% and a reduced terminal growth assumption of -1% (previously 0%). We have fine-tuned our FY18F and FY19F profit forecasts by 1-2% for housekeeping reasons.

• MPR's FY17 results came markedly below expectations with a core net loss of RM157mil, versus our full-year projection of -RM128mil and consensus estimate of - RM86mil. 4QFY17 sunk into deeper losses of RM77mil, vs. RM50mil last quarter and a thin profit in the preceding year quarter.

• The precipitous drop in 4Q earnings was led by lower advertising revenue in the TV and print segments, exacerbated by a string of one-off losses amounting to RM493mil. These items are mainly associated with noncash impairments of an associate, PPE and intangible assets linked to publishing rights. In addition, the group also offered an early retirement scheme (ERS) to some 217 employees (~5% of headcount) last quarter, consistent with the group’s objective to focus on digital businesses.

• These kitchen-sinking exercises are expected to stem the bleeding in MPR’s traditional businesses and bring about annualised savings of RM72mil. However, we believe the group will remain in the red in FY18F given TV and print still contribute two-thirds of group revenue.

• For this reason, we have removed our dividend forecasts for FY18F-FY20F pending further earnings clarity. MPR has not declared any dividend for FY17, vs. 8 sen declared for FY16.

• Positively, we highlight that CJ WOW SHOP’s revenue grew strikingly from RM61mil for a nine-month contribution in FY16 to RM130mil in FY17 (circa 11% of group revenue). Management targets to break-even by end of FY18.

• Our SELL call is premised on the following considerations: (1) rapid decline in newspaper circulation owing to the availability of digital content; (2) ailing prospects of the print and TV segments continue to weigh on earnings; and (3) uncertainties arising from imminent analogue switch-off. MPR’s current NTA/share stands at RM0.26, implying a P/NTA of 2.4x.

Source: AmInvest Research - 23 Feb 2018