Media Prima’s 3Q20 chalked an improvement with core PATAMI of RM4.9m (against -RM5.6m in 2Q20). 9M20 core loss of -RM29.6m came in better than ours/consensus’ loss forecasts of -RM48.3m/-RM60.9m for FY20. This was accomplished on the back of the rise in top line on YoY and QoQ basis, coupled with the cost savings measures that have helped bolster its bottom line. We lower our core loss in FY20 to -RM25.9m. Upgrade to BUY with higher TP of RM0.26 based on FY21f BVPS (RM0.51) of P/B multiple of 0.5x (circa - 1.5SD below its 3-year mean) after our earnings adjustments.

Better-than-expected. Media Prima’s 3Q20 revenue of RM268.8m (+13.7% QoQ, +1.2% YoY), translated into a core PATAMI of RM4.9m (vs. core LATAMI of -RM5.6m in 2Q20, -RM23.7m in 3Q19). This brought 9M20 core LATAMI to -RM29.6m, better than ours/consensus’ estimates of -RM48.3m/-RM60.9m, respectively. The improvement was attributed to better top line coupled with the lower opex thanks to its cost rationalisation. 9M20 sum has been arrived after adjusting for (i) net impairment charge (RM7m); (ii) FOREX loss (RM177k); and (iii) loss on disposal of PPE (RM414k). No dividend was declared.

QoQ. Top line improved by +13.7% buoyed by the increased in adex with the opening of the economy following the RMCO. EBITDA margin improved by 13ppt on bearing fruit on the recent headcount rationalisation. In tandem with that, the group turned profitable charting a core PATAMI of RM4.9m (vs -RM5.6m in 2Q20).

YoY. Revenue inched up by +1.2% on the back of impressive showing in home shopping segment (+40%) and digital media (+31%). This more than offset the decline in broadcasting (-7%), publishing (-30%), OHH (-29%) and content creation (-53%). Subsequently, core PATAMI was recorded as compared to a loss of -RM23.7 in 3Q19.

YTD. Revenue skidded by -7.2% on the back of the declines in all segment but was partially cushioned with the rise in digital media (+14%) and home shopping (+36%). The commendable result in home shopping was thanks to the increase in viewership and shifting in consumer spending habits. Coupled with the improve EBITDA margin by 4.3ppt, losses tapered to -RM29.6m (vs -RM70.4m).

Outlook. Adex showed a slight uptick on the back of the reopening of the economy. We opine that this was due to advertisers ramping up engagement in tandem with the relaxation of MCO measures. We gather from the management that despite the reintroduction of CMCO across the most of Malaysia, adex numbers has been resilient due to the group’s initiative in ramping up their integrated advertising solutions and producing more advertising content. Furthermore, we deem their business transformation exercise has proven to bear fruit and remain hopeful that the improvement will persist while subsequently defending its bottom-line.

ESG. In line with the focus on ESG investing, we are pleased that Media Prima has been listed as the constituent company of the FTSE4Good Index Series, a benchmark and tradable indexes for ESG investors. The group have been awarded as the top 25% by ESG Ratings amongst PLCs assessed by FTSE Russell in June 2020. One notable initiative was the collaboration of WOWSHOP with the Ministry of Domestic Trade and Consumer Affairs to link with the SMEs and developed a DESAMALL on WOWSHOP’s ECMC platform to help SMEs reach out to WOWSHOP’s large customer base.

Forecast. We revise FY20/21/22 forecasts upward from -RM48.3m/-RM15.8m/10.2m to -RM25.9m/RM7.7m/RM27.1m after factoring higher revenue and lower opex.

Upgrade to BUY with higher TP of RM0.26 based on FY21f BVPS (RM0.51) tagged to a higher P/B multiple of 0.5x (roughly -1.5SD below its 3-year mean) after our earnings adjustments. Despite the challenging outlook in the media industry, we are encouraged by the group initiative in streamlining its operations and at the same time proactively improving their integrated advertising solutions.

Source: Hong Leong Investment Bank Research - 19 Nov 2020