Media Prima’s 1Q21 core PATAMI of RM5.3m (QoQ: -85.5%; 1Q20: -RM28.9m) was below our and consensus expectations, accounting for 8.2% and 19.4% of full year forecasts, respectively. The results shortfall was due to lower-than-expected adex revenue. Given the results shortfall, we lower our FY21/FY22 core PATAMI by 54.1%/30.8% to RM29.6m/RM58m. Downgrade to HOLD with a lower TP of RM0.61 pegged to an unchanged P/B multiple of 1x (roughly +2SD above its 3- year mean) based on FY22 BVPS. Although adex environment remains soft, we believe that Media Prima will be able to weather through this near term headwind with its leaner cost structure as well as support from the home shopping segment.

Below expectations. Media Prima’s 1Q21 core PATAMI of RM5.3m (QoQ: -85.5%; 1Q20: -RM28.9m) was below our and consensus expectations, accounting for 8.2% and 19.4% of the full year forecasts, respectively. The results shortfall was due to lower than-expected adex revenue. Core PATAMI was arrived at after adjusting for forex loss (RM49k), impairment of financial instruments (RM286k) and gain on disposal of PPE (RM307k).

Dividend. None (1Q20: None).

QoQ. Revenue decreased -14.6% mainly due to lower adex spending early in the year (1Q is usually the softest quarter for adex) further aggravated by the imposition of MCO2.0. Consequently, core PATAMI decreased -85.6% due to weaker operating leverage and high base effect from 4Q20.

YoY. Revenue increased 6.8% mainly contributed by broadcasting (+15.5%), home shopping (+18.8%) and digital media (+10.8%) which more than offset the decline in OOH advertising (-30.1%). Subsequently, the group recorded core PATAMI of RM5.3m (from core LATAMI of -RM2.6m SPLY) due to lower operating expenses.

Outlook. We expect the group’s 2Q21 earnings to be similar sequentially as advertisers remain cautious in their spending in view of the imposition of MCO3.0. Despite operating in a soft adex environment, we are comforted that the group remains profitable in 1Q21. The group’s resilient earnings despite the challenging environment is supported by (i) its cost rationalization efforts bearing fruit; (ii) its OMNIA advertising solution which provides an integrated advertising solution that cross sell across its different platforms within Media Prima; (iii) its home shopping segment that captures the shifting consumer shopping habits towards contactless and e-commerce shopping; and (iv) its digital assets that captures the shifting ad spend towards the digital space.

Forecast. Given the results shortfall, we lower our FY21/FY22 core PATAMI by 54.1%/30.8% to RM29.6m/RM58m.

Downgrade to HOLD from Buy. Following our earnings adjustments, our TP is lowered to RM0.61 from RM0.66 pegged to an unchanged P/B multiple of 1x (roughly +2SD above its 3-year mean) based on FY22 BVPS. Following the share price run up (+129.8% YTD), we believe that the stock is currently fairly valued. Although adex environment remains soft, we believe that Media Prima will be able to weather through this near term headwind with its leaner cost structure as well as support from the home shopping segment.

Source: Hong Leong Investment Bank Research - 28 May 2021