Results

• Media Prima recorded 3Q16 revenue of RM316.8m (-9% QoQ, -13% YoY). Excluding the one-off restructuring cost of its Print operations of RM104.6m, 3Q16 recorded a core loss of RM4.8m.
• Cumulative 9M16 core earnings summed to RM40.4m (-62% YoY) coming in below HLIB and street’s full year estimates, making up 33% and 36%, respectively.

Deviations

• One-off restructuring cost of RM104.6m and drop in adex and circulation trend.

Dividends

• Dividend of 2.00 sen/share was declared, bringing 9M16 DPS to 4.00 sen/share (5.00 sen/share in 9M15).

Highlights

• YoY: 9M16 revenue declined by 9% due to a 21% decline in its print segment’s revenue mainly attributed to a drop in overall adex and circulation trend. Media Prima’s TV segment’s EBITDA fell 48% in 9M16 as the segment faced higher cost stemming from the implementation and operations of its home shopping business.
• QoQ: With the exception of its outdoor and digital segment, all other segments experienced a decline in PBT. TV segment PBT dropped 73% as it faced the brunt of dreary adex environment and the shift from traditional media to digital media, further dragged by implementation and operating cost of its home shopping business. Its radio segment PBT declined 38% attributed to sluggish adex environment and costs incurred for its newly launched Kool FM which is still in its gestation period. Print dipped into the red in 3Q16, recording loss before tax of RM24.3m.
• Outlook: For 4Q16, we expect a pick up due mainly to seasonality, as 4Q typically makes up circa 23%-36% of full year earnings. On top of that, we expect the company’s completed restructuring effort of closure of its two printing plants to translate into lower depreciation and staff costs, further lifting its earnings.
• Although we are positive on the restructuring exercise, we do not believe the savings will be enough to counter the overall bleak outlook on print adex and circulation. We turn cautious on Media Prima as outlook for overall adex remains poor due to structural shift in the media landscape from traditional to non-traditional media. Consumer and business sentiments continue to remain weak.

Risks

• Weak Adex growth; High content and newsprint cost; Threat of new players; Structural shift; and regulatory risk.

Forecasts

• We cut FY16-17-18 earnings forecasts by 37%-32%-30.2% as we anticipate weaker adex environment, structural shift in media platform and soft business and consumer sentiment.

Rating

SELL (↓)

• Although we like MPR for its integrated media business and its monopoly position in Free-To-Air Segment, we turn cautious as we expect prolonged soft consumer and business sentiment, weak adex environment and continued structural shift in media platform to challenge its profitability.

Valuation

• Downgrade to SELL, with lower TP of RM0.87 (from RM1.28) based on P/E multiple of 10x FY17 EPS. (4-year average P/E multiple).

Source: Hong Leong Investment Bank Research - 30 Nov 2016