Media Prima’s 3Q19 core loss of RM19.7 (2Q19: -RM5.1m, 3Q18: -RM32.4m), brought 9MFY19 core loss to RM66.3m (9MFY18: -RM55.9m). We deem the results as below expectations. With traditional adex showing no sign of recovery, we believe Media Prima will accelerate its efforts to increase contributions from the digital segment. Widen FY19/FY20/FY21 loss forecast as we impute lower contribution from traditional adex. Upgrade to HOLD (given steep share price fall) with lower TP of RM0.29 based on P/B of 0.4x (-2D below 3-year mean) and FY20 BV of RM0.70.

Below expectations. Media Prima’s 3Q19 core loss of -RM19.7m (2Q19: -RM5.1m, 3Q18: -RM32.4m), brought 9MFY19 core loss to -RM66.3m (9MFY18: -RM55.9m). We deem the results as below expectations vis-à-vis our core loss forecast of - RM81m (consensus: -RM88m) as we anticipate an even weaker 4Q. The variance was largely premised by (i) higher depreciation (+83% YoY) and (ii) lower revenue contribution (-10% YoY) but was offset by lower operating cost (-15% YoY). No dividend was declared.

QoQ. 3Q19 revenue declined by -11% to RM265m chiefly due to TV, out-of-home and digital segments recording a drop of -18% and -13% respectively. This was partially offset by growth from the content creation segment (8%). Core loss widened to - RM19.7m from -RM5.1m in 2Q19 due to higher depreciation charge and was slightly cushioned by lower operating cost.

YoY. Core loss narrowed to -RM19.7m thanks to lower operating cost by 16%, offset by higher depreciation charge. Revenue was slower by 3% premised on slower revenue by all segments due to the absence of festive season and lower adex and circulation revenue.

YTD. Despite the home shopping segment growing by 12%, 9M19 revenue declined 10% on the back of weaker contribution from traditional platforms namely TV (-10%), print (-15%) and radio (-33%). Core loss widened to -RM66.3m vs. -RM55.9m as a result of weaker revenue coupled with higher depreciation pushing EBITDA to fall by 12%.

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 efforts to increase the contribution from digital segment from both online and offline platforms to cushion the falling revenue. In addition, we believe more cost management initiatives will be another priority for Media Prima to cushion the falling traditional adex.

Forecast. We widen FY19/FY20/FY21 loss forecast by 18%/41%/more than 100% as we imputed lower contribution from traditional adex due to weaker consumer sentiment.

Upgrade to HOLD but with lower TP: RM0.29. Since our last SELL rating on 23 August, Media Prima share price has come off by 43%. Our TP of RM0.29 (from RM0.32) is derived from P/B of 0.4x (-2SD below 3-year mean) and FY20 BV of RM0.70.

Source: Hong Leong Investment Bank Research - 22 Nov 2019