Media Prima’s 1H20 recorded a core loss of –RM34.5m (1H19: –RM46.7m). The results came in better than ours/consensus projected core loss of –RM110.7m /–RM91.1m for FY20. All in all, home shopping served as a mild buffer against the drag traditional segments. We narrow our loss forecast in FY20/21 to - RM48.3m/-RM15.8m from -RM110.7m/-RM17.5m respectively. Maintain HOLD with higher TP of RM0.18 (from RM0.17) based on PB of 0.4x (roughly -2SD below 3-year mean) on FY21 BVPS of RM0.45.

Above expectations. Media Prima’s 2Q20 core LATAMI of –RM5.6m brought the 1H20 sum to –RM34.5m (1H19: –RM46.7m). The latter was above expectations vs ours/consensus FY20 core LATAMI forecast of –RM110.7m and –RM91.1m, respectively. This improvement was attributed to the lower operating expenses incurred as efforts in containing cost seem to be fruitful. 1H20 core LATAMI sum has been arrived after adjusting for (i) net impairment charge (RM3.5m); (ii) foreign exchange loss (RM211k); (iii) inventories written down (RM146k); (iv) loss on disposal of PPE RM10k and (v) termination benefit of RM11.3m. No dividend was declared.

QoQ. 2Q20 revenue dipped by -0.9% to RM236.3m as the reduction in advertising revenue was slightly mitigated by an increase in home shopping segment +37.1%. Despite this, core LATAMI improved from –RM28.9m to –RM5.6m, riding on lower operating expenses benefiting from the group proactive measure in containing cost.

YoY. Top line decreased by -20.4% stemming from the drag in all segment but cushioned slightly by the positive showing in home shopping segment +47.7% and digital segment +20.3%. Publishing (-59%) and broadcasting (TV and radio) (-46%) continue to be dragged by lower adex. Out-of-home on the other hand, suffered by - 36.8% from the deferment of display advertising. Despite this, core LATAMI narrowed from -RM9.6m to -RM5.6m attributable to increase in 4.8ppt in core EBITDA margin from 7.8% to 11.1% (better cost controls).

YTD. Revenue lowered by -11.4% from RM535.9m to RM474.7m due to weak adex spending amidst the Covid-19 pandemic but slightly moderated by the increase in home shopping segment +33.7%. Note that the group has started introducing Omnia segment that consists of advertising revenue from the group broadcasting, publishing and branded content effective April 2020. Omnia contributed RM118.7m (25%) for 1H20 top line. Core LATAMI narrowed from -RM46.7m to -RM34.5m mainly due improved EBITDA margin as the operating expenses moderated, thanks to the cost initiative management by the group.

Home shopping the saviour. Contrary to other segments, home shopping exceeded the historical record chalking in revenue of RM88.3m an increase of 47.7% YoY. We opine that this trend will persist moving forward stemming from the change of consumer shopping habits brought by Covid-19. Despite the relaxation of MCO rules paving way to normalcy, adex still suffered negatively as advertisers continue to exercise caution in this weak global economic environment. Nevertheless, we deem their business transformation exercise has proven to bear fruit and remain hopeful that the improvement will persist.

Forecast. We narrow our FY20/21 loss forecast to -RM48.3m/-RM15.8m from -RM 110.7m/-RM17.5m respectively. Using the retrenchment exercise in FY19 as a benchmark, we have imputed a total of RM33m of total termination benefits and this is included in the EIs for FY20. Maintain HOLD with slightly higher TP of RM0.18 (from RM0.17) based on FY21f BVPS (RM0.45) of P/B multiple of 0.4x (roughly -2SD below its 3-year mean) after lowering our loss forecast.

Source: Hong Leong Investment Bank Research - 28 Aug 2020