Media Prima’s 9M18 core losses of RM55.9m, (9M17: RM77.8m loss) came in below ours and consensus expectations, due to higher than expected operating cost. 9M18 narrowed losses were due to lower depreciation and amortisation cost and tax rate. We reduce our FY18-20 earnings forecast to -RM84.9m -RM31.8m and -RM11.6m to account for higher operating cost and lower revenue. We maintain HOLD with a slightly lower TP of RM0.41.

Below expectations. Media Prima charted revenue of RM894.8m for 9M18 (+0.6%) translating into a core LATAMI of RM55.9m. The loss was higher-than-expected compared to our full year loss forecast of RM38.2m and consensus’ RM52.9m. The below expectations results was due to higher than expected operating cost as there was a delay in staff layoff.

QoQ. 3Q18 revenue declined by 21% to RM271.8m due to lower adex and circulation revenue, core LATAMI worsened to RM32.6m from RM3.4m due to high fix cost structure and further dragged by lower revenue (from all segments except for home shopping).

YoY. 3Q18 revenue increased by 6% and core losses shrank to RM32.6m from RM101.1m. Revenue contributions from digital and home shopping segments increased to 29.3% and 68.2% respectively, while other segment continue its declining trend. The narrowed losses were also due to improved margins from these two segments.

YTD. 9M18 recorded a loss of RM55.9m as compared to a loss of RM77.8m due to lower depreciation and amortisation cost and tax rate that was slightly offset by weaker margin in all operating segment except for home shopping, outdoor and digital segment.

Outlook. In light of (1) delay in staff layoffs, (2) slower than expected adex growth despite strong consumer sentiment, and (3) strong competition in the digital platforms, we anticipate losses to continue.

Forecast. We lower our FY18-20 earnings (i.e. widen loss) forecast to -RM84.9m, -RM31.8m and -RM11.6m from -RM38.2m, RM12.2m and RM21.7m as we adjust for higher operating cost and lower revenue. We maintain HOLD, with a slightly lower TP: RM0.41 (previously RM0.42) based on a 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.

Source: Hong Leong Investment Bank Research - 22 Nov 2018