Media Prima’s 1Q20 recorded a core loss of -RM28.9m (4Q19: +RM7.4m, 1Q19: - RM37.2m). The results came in wider than our projected core loss of -RM39.8m for FY20. On the YoY and QoQ basis, revenue was impacted from the declines in all segments except for digital media and home shopping division s. We widen our core loss in FY20/21 further to RM74.9m (from RM39.8m) and RM45.5m (from RM17.8m). Maintain HOLD with lower TP of RM0.17 based on PB of 0.4x (roughly -2SD below 3-year mean) on FY21 BVPS of RM0.43.

Below expectations. Media Prima charted revenue of RM238.4m for 1Q20 (-21.7% QoQ ,-0.3% YoY). This translated to a core LATAMI of -RM28.9m, against ours and consensus full year forecasts of -RM39.8m and -RM37.6m, respectively. This disappointment was attributed to the lower-than-expected contribution from all segments, excluding digital media and home shopping. Note that 1Q20 core LATAMI sum has been arrived after adjusting for (i) net impairment charge of financial instruments RM512k; and (ii) RM115k for foreign exchange loss. No dividend was declared.

QoQ. 1Q20 revenue declined by -21.7% to RM238.4m chiefly due to declines in radio, TV and content creation segments by -61.3%, -33.7% and -68.0%, respectively. Subsequently, this translates to core LATAMI of -RM28.9m vs core PATAMI RM7.4m in the previous quarter. This was attributed to decrease of 11.4ppt in core EBITDA margin from 12% to 0.6%.

YoY. Higher revenue from content creation (+111.2%), digital media (+50.3%) and home shopping segments (+18.3%) were insufficient to prevent 1Q20 revenue to moderate by -0.3%. The big drop of -56% in revenue from radio was attributable to the lower advertising take up and growth of digital marketing options for advertisers. However, core LATAMI narrowed form -RM37.2m to -RM28.9m due to lower operating expenses, thanks to the cost initiatives management by the group.

Adex. With business activity slowing down from a weak global economic environment due to Covid-19, there has been a downtrend in marketing expenses. Advertisers turned more cautious in their adex spending and this in turned hit the group’s top line. We expect out-of-home segment to suffer the most moving forward due their less relevance, now that most of the people are staying put at home.

Home shopping and digital media. We witnessed an improvement in the areas Media Prima is eyeing, namely digital and home shopping segment as its future key drivers. With the MCO enforced and extended, the group has seen a surge in orders by +66% and +115% for their CJWOWSHOP on TV3 and TV8, respectively. However we believe the growth will be unable to cushion the declining traditional media revenues. Going forward we expect the loss to deteriorate further, when the burnt of Covid-19 will likely be felt with the extension of MCO/CMCO to the majority of the 2Q20.

Forecast. Given the results shortfall, we widen our FY20/21 loss forecast to -RM74.9 (from -RM39.8) and -RM45.5 (from -RM17.8m). We also introduced our FY22 numbers. Despite their aggressive cost rationalization effort, we expect the revenue to remain subdued due to current economic slowdown resulting from the Covid-19 pandemic.

Maintain HOLD with lower TP of RM0.17. We take this opportunity roll forward our valuation horizon to FY21f BVPS (RM0.43) on P/B multiple of 0.4x (roughly -2SD below its 3-year mean) as it reflects the prolonged weakness to return to black coupled with severe impact of Covid-19.

Source: Hong Leong Investment Bank Research - 28 May 2020