Investment Highlights

• We are upgrading Media Prima (MPR) from a SELL to HOLD with a revised fair value of RM0.35/share (previously RM0.50/share), pegged to an FY17 PB of 0.5x. We have switched our valuation metric from DCF to PB given the ambiguity of future cash flows. Our forecasts are unchanged.

• MPR registered a narrower core net loss of RM21.8mil in 1QFY18, compared with RM77.4mil last quarter, and RM39.1mil in 1QFY17. The loss is within our full-year projected loss of RM51.9mil. In contrast, the consensus loss expectation is RM30.6mil for the full year.

• The improvement in performance was mainly attributed to cost savings arising from a series of restructuring/kitchensinking exercises last year. Notably, the group offered an early retirement scheme (ERS) to some 217 employees (~5% of headcount) and made provisions for PPE impairment worth RM117.9mil. These exercises have resulted in lower overheads and depreciation expenses for the quarter. Management has indicated that further cost savings will be realised in the second half of 2018.

• In addition, MPR’s 1QFY18 revenue inched up 3% YoY mainly due to the acquisition of Rev Asia last year and a solid 59% growth in the home shopping segment (CJ WOW Shop). Revenue growth from the group’s out-of-home and radio divisions was also encouraging, expanding 4% and 20% YoY respectively. However, these were largely offset by further decline in TV adex.

• Moving into 2QFY18, we believe earnings will be supported by increased campaign advertising for GE14 and potentially higher adex rates during the coverage of 2018 FIFA World Cup.

• Overall, we are neutral on MPR due to the sustained decline in newspaper circulation and a hazy operating environment for the TV segment upon analogue switch-off.

• Nevertheless, we believe the negatives have been priced in with its FY17 PB currently trading at 0.5x. This represents a discount to its 1-year historical average of 0.8x. In addition, the group’s restructuring exercises are expected to stem the bleeding in MPR’s traditional businesses and bring about annual cost savings of RM72mil.

Source: AmInvest Research - 25 May 2018