Results

• Below expectations – Media Prima charted revenue of RM601m for 1HFY17 (-8% yoy). This translates to a core LATAMI of -RM37.3m (-3.36 sen/share), not comparable to ours and consensus full year forecasts of RM70m and RM40m respectively.

• In derivation of core earnings, we have excluded one-off impairment of investment in MNI (RM142.4m).

Deviations

• Lower-than-expected revenue contributions from traditional platforms.

Dividends

• None.

Highlights

• QoQ: 1Q17 revenue grew by 21% qoq, which translated into core earnings of RM4m from a loss of RM41.4m in 1Q17. This was mainly attributed to higher advertising revenue during the festive season (Hari Raya in June).

• YoY: The 6% drop in 2Q17 revenue led to a significant decline of -83.6% in core earnings to RM4m. The sharp contraction in earnings was dragged by lower advertising revenue and newspaper sales as traditional media faced ongoing challenges of subdued adex and the shift to digital media.

• YTD: The rebound in 2Q17 earnings was not sufficient to offset the loss recorded in 1Q17, leading to a core loss of – RM37.3m in 1H17. The significant drop in earnings was on the back of lower yoy revenue contributions from traditional platforms such as TV networks (-15%), print media (-20%), and radio network (-9%).

• Outlook: Challenging time remains in the traditional media due to the digital disruption. Moving forward, Media Prima’s digital initiatives should somewhat cushion the impact of declining adex. Encouraging results can be seen after the launch of CJ Wow Shop, YTD revenue boosted by more than 100% to RM60m.

Risks

• Weak Adex growth; High content and newsprint cost; Threat of new players; Depreciation of RM vs. US$; and Regulatory risk.

Forecasts

• We lower our FY17, 18 and 19 core earnings forecasts by 62%, 27% and 26% to RM43.6m, RM59.1m and RM63.4m largely to reflect lower adex revenue and higher operating cost.

Rating

SELL ( ↔ )

• Despite MPR’s monopoly position in Free-To-Air segment with an integrated media business, we expect sluggish adex growth to persist into the medium term. Prolonged soft consumer and business sentiment, weak adex environment and continued structural shift in media platform will challenge its profitability.

Valuation

• We maintain SELL with a lower TP of RM0.53 (previously 0.62) based on P/E multiple of 10X FY18 EPS of 5.3sen.

Source: Hong Leong Investment Bank Research - 15 Aug 2017