Media Prima’s 1H18 core losses of RM23.5m, (1H17: RM171m loss) came in above ours and consensus expectations. The narrowed losses were due to higher contributions from digital and the home shopping segments. The group also announced a disposal of 3 properties (Bangsar property, Shah Alam property and Shah Alam vacant land) for a cash consideration of RM280m leading to a disposal gain of RM127.7m. We raise FY18-20 earnings forecast to - RM15.4m, RM9.5m and RM19.9m to account for lower operating cost and higher revenue from digital and home shopping segments. We upgrade from Sell to BUY with a higher TP of RM0.48.

Above expectations. Media Prima charted revenue of RM623.0m for 1H18 (+3.7%) translating into a core LATAMI of RM23.5m. The loss was lower-than-expected (i.e. results above expectations) compared to our full year loss forecast of RM90.3m and consensus’ RM47m. The above expectations results stemmed from lower-than expected operating cost (margin improvement) and higher-than-expected growth from digital and home shopping segments.

QoQ. 2Q18 revenue rose by 22% to RM342.4m, core LATAMI narrowed to RM3.6m from RM19.9m. The improvement was due to higher revenue contribution from all segments except print. Shopping segment saw a 22% rise in customer base to 0.94m shoppers with 60% of goods sold are now sourced locally.

YoY. 2Q18 revenue increased by 4.1% and core losses shrank to RM3.6m from RM133.0m. Revenue contributions from digital and home shopping segments increased to 22.6% as compared to proceeding year’s 12.4%. The narrowed losses were also due to improved margins from these two segments and

YTD. 1H18 recorded a loss of RM23.5m as compared to a loss of RM171.4m in 1H17. The significant improvement was due to higher revenue contribution from better margin segments namely outdoor, digital, and home shopping.

Unlocked assets at a fair price. The group announced that NSTP had entered into 3 separate sales and purchase agreements with PNB Development. The group is disposing 3 properties (Bangsar property, Shah Alam property, and Shah Alam vacant land) for a total cash consideration of RM280m leading to a disposal gain of RM127.7m. On the same announcement, Media Prima also entered into 2 separate tenancy agreements with PNB, to lease the Bangsar and Shah Alam properties from PNB. We deem the selling and leasing prices fair at 7.3% cap rate for the Bangsar property and 6.2% cap rate for the Shah Alam property.

Asset light strategy. By disposing the land, the group will generate a total savings of RM10m per annum, as there will be savings on interest and depreciation costs. The group will be using the asset sales proceeds to (i) invest in new business, (ii) pair down debts and (iii) pay out early retirement scheme. We deem this exercise a healthy step for the group. Moving forward, not only it will have a stronger balance sheet, the group will also have long term cost savings.

Forecast. We increase our FY18-20 earnings forecast to -RM15.4m, RM9.5m and RM19.9m from -RM90.1m, -RM71.1m and -RM48.8m as we adjust for lower operating cost and higher revenue from digital and home shopping. We upgrade from Sell to BUY, with a higher TP: RM0.48 (previously RM0.31) based on a higher P/B of 0.7x (1SD below 5-year mean) instead 0.5x (-2SD) as we opine that the group’s digital initiatives have kicked in faster than expected and it’s strong balance sheet ahead would open doors for more opportunities.

Source: Hong Leong Investment Bank Research - 3 Sept 2018