Media Prima’s 2Q19 core loss of -RM5.1m (1Q19: -RM41.5m, 2Q18: -RM1.4m), brought 1H19 core loss to -RM46.6m (1H18: -RM23.5m). The wider loss was due to weaker contribution from all segments. As much as we are positive on its digital effort, traditional adex remain a drag. We foresee a long road to recovery for Media Prima as it may take some time to tilt its business from traditional to digital based. Lower our FY19/FY20/FY20 earnings forecast by -23%/-39%/-80% as we impute lower contribution from traditional adex. Maintain SELL with lower TP of RM0.32, based on P/B of 0.43x (-2SD below 3-year mean).

Below expectations. Media Prima’s 2Q19 core loss of -RM5.1m (1Q19: -RM41.5m, 2Q18: -RM1.4m), brought 1H19 core loss to -RM46.6m (1H18: -RM23.5m). The core loss in 1H19 was larger than expected vs our full year and consensus forecast of - RM63m and -RM56m respectively. The deviation was largely caused by lower than expected contribution from all segments, except for home shopping, which posted higher top line thanks to higher product sales. No dividend was declared.

QoQ. 2Q19 revenue rose by 24% to RM297m and core losses narrowed to -RM5.1m from -RM41.5m. The improvement was due to higher revenue contribution from all segments except print, benefiting from festive season, which saw higher take up for adex. Shopping segment saw an 18% increase in items sold despite customer base being flat at 260k.

YoY. Despite expenses dropping 18% thanks to its cost management effort, core loss widened to -RM5.1m from -RM1.4m, attributed to the severe dropped in revenue by 13% and higher depreciation by 54%. During the quarter, only home shopping posted better revenue of 15% benefited from more airtime allocation.

YTD. Despite stronger home shopping segment by 19%, 1H19 revenue declined 14% on the back of weaker contribution from others segment. The contribution from traditional segments remain challenging especially from TV (-13%), print (-34%) and radio (-37%) mainly due to lower adex and newspaper sales. Core loss widened to RM46.6m (+99%) as a result of weaker revenue coupled with higher depreciation that pushed EBITDA to fall by -74%.

Challenging time for print. Media Prima alluded that its print segment, NSTP will not suffer the similar fate with a peer which came to a near closure, mainly due to its strong brand. Though the circulation is falling, NSTP is gaining traction on the digital side, witnessed by its rising viewership in all its online newspaper.

Outlook. Contribution from traditional adex remains a drag for Media Prima given the change of customer preference to digital media. With no clear signal for traditional adex to recover, we believe Media Prima will accelerate the contribution from digital segment from both online and offline platforms to cushion the falling revenue. In addition, we believe cost management initiative will be another prime priority for Media Prima to cushion the falling traditional adex.

Forecast. Lower FY19/FY20/FY21 earnings forecast by -23%/-39%/-80% as we impute lower contribution from traditional adex in anticipation of flat environment in 2H19.

Maintain SELL with a lower TP: RM0.32 (previously RM0.34). We roll over our valuation to FY20, with P/B of 0.43x (-2SD below 3-year mean). As much as we are positive on its digital effort, traditional adex remain a drag. We foresee a long road to recovery for Media Prima as it may take some time to tilt its business from traditional to digital based.

Source: Hong Leong Investment Bank Research - 23 Aug 2019