According to The Edge, Media Prima had issued notice letters to 300 employees who will be let go on 31 July as part of its business transformation plan. 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 RM28m annually. We widen our loss foreca st to -RM110.7 for FY20 imputing the cost of the retrenchment exercise. 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 seve re impact of Covid-19.

NEWSBREAK

The Edge reported that Media Prima said it had issued notice letters to 300 employees who will be let go on 31 July as part of its business transformation plan. In a statement, the media group said it, together with representatives of its five union groups, had concluded discussions on the execution of the next phase of the group’s business transformation plan that was announced earlier on 4 June.

HLIB’s VIEW

Confirmed. This news confirmed the earlier announcement by Media Prima on 4 June regarding their possible layoff (refer to our report titled “Another Layoff” dated on 5 June). This will be the second retrenchment exercise for the Group after the layoff of 543 staff at Media Prima’s publication group News Straits Times Press (NSTP) in March 2020.

Necessary measure. In the previous retrenchment exercise, the group trimmed down its headcount by c.900 people (24% out of 3,689 employees as at 2019) and the group incurred a total of RM99m in termination benefits. This amounted to about RM110k per employee. Following the previous announcement of the group’s business transformation, it has been concluded that 300 employees will be let go from this round of exercise.

The cost. 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 view that this might tighten their belt even further. From our channel checks, management reiterated that this termination cost would be fully incurred in FY20.

Longer term cost savings. However, this will lead to long-term staff cost savings post retrenchment exercise. Based on FY19 annual report, Media Prima incurred total employee cost of RM348m (ex-termination benefits) on the back of 3,689 headcount; this translates to a staff cost of RM94k/employee per annum. As such, the reduction of headcount by 300 would result to longer-term staff cost savings of RM28m from FY21 onwards.

Forecast. Visiting back our numbers, we widen FY20 loss forecast from -RM74.9m to -RM110.7m. On the back of long-term cost savings, our FY21 loss forecast narrowed from -RM45.5m to -RM17.5m. 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. Although the upside is 13%, we still maintain HOLD as we view the outlook for Media Prima to remain bleak, due to Covid-19, which we believe has thwart cost savings measure made by the group.

Source: Hong Leong Investment Bank Research - 30 Jun 2020