Media Prima is expecting its home shopping segment to break even by FY19 and is looking to grow its digital division through acquisitions. Several major rationalisation activities include (i) ceasing of Prai, Penang printing plant; and (ii) disposing of certain properties. Moving forward, there are plans to consolidate printing facilities among the newsprint community, this would improve production efficiencies and reduce wastage. We would like to highlight that the reintroduction of SST will not impact Media Prima. We maintain SELL with an unchanged target price of RM0.31.

We had a meeting with management last week and walked away feeling less sanguine. Below are the key meeting takeaways.

Home Shopping as one of the key growth drivers. Home shopping’s results have been encouraging as the division benefited from a double digit YoY revenue growth. With the narrowing losses, the group is hopeful that the division will breakeven in FY19. However, we think that TV shopping will eventually follow the path of print, as they are competing with online retails as broadband service proliferates.

Growing digital platform through small acquisitions. Management is eyeing on more acquisitions to grow its digital segment. They are looking at small acquisitions, like the recent purchase of 52% stake in Vocket, which was settled with a cash consideration of RM2.5m. However, we think that the digital division will still take some time to show significant contribution as it is competing with the multinational media companies like Facebook and Google.

Asset rationalisation. Media Prima will be carrying out several major rationalisation activities this year, which include (i) ceasing of the printing plant in Prai, Penang by September; and (ii) disposing certain properties. We note that, the group has several lucrative parcels of land that if unlocked, would result in cost savings and one-off disposal gain.

Consolidate printing facilities. Newspaper circulation weakened since 2012, and we do not expect this to improve in future. As newsprint sales continue to fall, there are talks among the newsprint community (which includes Star and Media Chinese) on centralising production, this would improve production efficiencies (i.e. logistics, machineries, and materials) and reduce wastage.

Not affected by SST 2.0. Newspaper is now exempted from SST and was also previously exempted from GST. Moving forward, there will be a 6% service charge on adex, which will be pass through to Media Prima’s clients. Hence the reimplementation of SST is a non-event to Media Prima.

Up-coming 2Q18 results will be stronger. We are expecting the group to announce a slightly stronger 2Q, due to improved adex driven by several events, which includes GE14, World Cup and Hari Raya. Management guided that they are hopeful for 3Q banking on Merdeka campaign, however we opine that, traditional adex will remain soft this year.

Forecast. Unchanged.

Maintain SELL, TP: RM0.31 based on P/B multiple of 0.5X, 2SD below its 5-year mean to reflect the slow moving traditional industry environment.

Source: Hong Leong Investment Bank Research - 30 Jul 2018