Results

• Below expectations – Media Prima charted revenue of RM889.5m for 9MFY17 (-8% YoY). This translates to a core LATAMI of RM77.8m (-24.6 sen/share), not comparable to ours and consensus full year profit forecasts of RM43.3m and RM13.9m, respectively.
• In derivation of core loss, we adjust for one-off impairment of investment of RM142.4m and restructuring expenses of RM52.3m.

Deviations

• Higher-than-expected cost as the Group had venture into new digital business; higher outdoor media start up cost.

Dividends

• None (3Q16: 2sen per share).

Highlights

• QoQ: 3Q17 revenue declined by 12%, which translated into core LATAMI of RM48.8m from a core profit of RM9.5m in 2Q17. This was mainly attributed to higher advertising revenue during the festive season (Hari Raya in June) in 2Q17; 3Q17 was affected by a decline in core advertising revenue from the traditional platforms.
• YoY: 3Q17’s losses widened to RM48.8m as compared to 3Q16 of RM4.8m. 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: 9M17 earnings turned into red, recorded a loss of RM77.8m. The significant drop in earnings was on the back of lower yoy revenue contributions from traditional platforms such as TV networks (-17.8%), print media (-19.4%), and radio network (-5.3%).
• 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.

Risks

• Strong Adex growth; Lower content and newsprint costs; Appreciation of RM vs. US$ (content); and Regulatory risk.

Forecasts

• We lower our FY17, 18 and 19 core earnings forecasts to core losses of RM108.2m, RM117.6m and RM124.9m 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

• In view of its potentially prolonged losses, we change our forecast methodology from P/E ratio to P/BV ratio. We maintain SELL with a lower TP of RM0.45 (previously RM0.53) based on P/BV multiple of 0.4X which is 2SD below 5 years historical average to reflect the deteriorating industry environment.

Source: Hong Leong Investment Bank Research - 30 Nov 2017