We attended Media Prima’s investor day last week, we walk away feeling slightly negative. Digital segment revenue grew by 14% QoQ from 1Q18, it will continue to grow through acquisitions and partnerships, SME advertising market and new advertising platform. While management previously guided for reduced losses in the coming quarters, this tone has changed due to delay in staff layoffs and slower-than-expected adex growth. In light of revised guidance, we revised our earnings projections to a greater loss of RM38.2m for FY18 and downwards by 48%/33% for FY19/20. Downgrade to HOLD with a lower TP of RM0.42 pegged to lower P/B of 0.6x.

We attended Media Prima’s investor day, Inside Out, last week. About 20 analysts in town attended the sharing session by respective CEOs of each segments. We walked away feeling slightly negative on the group’s digital initiatives. Below are the key meeting takeaways.

Growing digital platform through small acquisitions. Management is eyeing to grow the digital segment through (1) more acquisitions and partnership; (2) targeting the SME advertising market; and (3) new advertising platform. Recently, the group has gone into partnership with YouTube, Dailymotion, and Mashable Asia. On a side note, we are impressed with RevAsia’s 14% QoQ growth from 1Q18. 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.

Newspaper circulation picking up but adex remains weak. Management sees newspaper circulation bottoming out with an expected 10% circulation growth in the coming quarter, thanks to the new-found press freedom but also highlighted that adex still remains weak. NSTP also believes that it is slowly capturing Utusan’s market share and now dominates a bigger market share in the Malay newsprint industry.

Cross segment synergies. The out-of-home (OOH) segment is moving towards O2O (offline-to-online) direction, where the company will focus on geotagging and image recognition. On top of that, the OOH segment is working together with the radio segment to attract users on the street to the radio sites.

2H18 earnings trajectory. While management have previously guided for reduced losses in the coming quarters, this tone has changed due to (1) delay in staff layoffs; (2) slower than expected adex growth despite strong consumer sentiment. In light of this, revised guidance we anticipate the losses to persist for the quarters ahead (3Q and 4Q) and the company will remain in the red for FY18.

Forecast. We revised our earnings projection to a greater loss of RM38.2m for FY18 and downwards by 48%/33% for FY19/20. As we adjust for prolonged losses and lower adex for the traditional segments (TV and print).

Downgrade to HOLD from BUY, with a lower TP: RM0.42 (previously RM0.48). In view of the slower-than-expected return to the black we feel it is warranted to peg a lower P/B of 0.6x (2SD below 5-year mean). As much as we like Media Prima’s ongoing digital initiatives, we think that the traditional segment will still drag the company in the near term. We will only start seeing rewards from the initiatives in 2H19.

Source: Hong Leong Investment Bank Research - 12 Nov 2018