According to The Edge, Media Prima has confirmed a possible staff layoff, as it expedites the next phase of its business transformation that will include revising revenue models and corresponding cost management. We estimate from the similar exercise in 2019, Media Prima will need to fork out one off RM33m for compensation package and reap an eventual cost savings of RM29m annually. We leave our forecast unchanged pending more clarity from management in the details. Maintain HOLD with unchanged TP of RM0.17 pegged to 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.

NEWSBREAK

The Edge reported that Media Prima has confirmed a possible staff layoff, as it expedites the next phase of its business transformation that will include revising revenue models and corresponding cost management. “These initiatives will involve operational changes at selected units to address cost inefficiencies arising from unnecessary work duplication”, the company said.

HLIB’s VIEW

Surprise. This news came as a surprise as the retrenchment exercise was expected to have ended in 1Q20 with the affected employees last working days to be in March 2020. During the last analyst briefing for 4Q19 in Feb 2020, management reiterated that they’re not expecting to cut down on their workforce any further.

Necessary measure. In the previous retrenchment exercise, the group trimmed down its headcount by c.900 people (23% out of 3,897 employees as at 2018) and the group incurred in total RM99m for the termination benefits. This amounted to about RM110k per employee. Though the management is keeping a tight lipped on how many employees will be affected, citing from the news article in Free Malaysia Today on Wednesday, we gather that about c.300 employees (11% of their current workforce of c.2600) will be let go from this round of exercise.

Rough calculation. From our back of the envelope calculation (using the similar abovementioned exercise as a benchmark), Media Prima will need to fork out about RM33m. Taking this into account with the loss forecast that we have imputed, we viewed that this might tighten their belt even further. Assuming this retrenchment cost is incurred fully this year, this would widen our loss forecast from -RM74.9m to - RM107.9m on a proforma basis.

Longer term cost savings. However, this will result to longer-term staff cost savings post retrenchment exercise. Based on FY18 annual report (FY19 not released yet), Media Prima incurred total employee cost of RM382m (ex-termination benefits) on back of 3,897 headcount; this translates to a staff cost of RM98k/employee per annum. As such, the reduction of headcount by 300 would result to longer term staff cost savings of RM29.4m from FY21 onwards. Adding this savings back to our FY21 current loss forecast (-RM45.5) would result to a narrower loss of -RM16.1m on proforma basis.

Forecast. We leave our forecast unchanged pending more clarity from management in the details.

Maintain HOLD with unchanged TP of RM0.17 pegged to 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 - 5 Jun 2020