Media Prima Is Paying RM156.4m to Repurchase Balai Berita Bangsar, One of the Two Properties It Sold to PNB in 2018. We Opine That This Move by Media Prima May Signal to Investors That It Is Now More Confident of Its Financial Position and That It Believes That Its Earnings Are Now More Sustainable. Besides That, the Company Is Also Looking Forward Now on Its Future Growth by Investing in New Studios to Develop Its Content Production Segment. Following Its Recent Share Price Weakness, We Upgrade Our Call to BUY With Unchanged TP of RM0.61 Pegged to P/B Multiple of 1.0x.

NEWSBREAK

Media Prima is paying RM156.4m to repurchase Balai Berita Bangsar, one of the two properties it sold to PNB in 2018. Media Prima said it had received a letter of offer from PNB to acquire the building as well at the two parcels of freehold land which measure approximately 151.8k sqft it currently occupies. The deal will be satisfied entirely by cash, it added.

HLIB’s VIEW

Recap. In 2018, Media Prima disposed one piece of land and three properties in Bangsar and Shah Alam to PNB for a total cash consideration of RM280m. The properties in Bangsar were sold for cash considerations of RM118.7m while the property and land in Shah Alam for RM161.3m. Under a tenancy agreement, these properties were leased back to Media Prima for 3 years at RM720k per month for the Bangsar property and RM660.3k per month for the Shah Alam property. The sale proceeds were used to repay a term loan granted by a financier to Media Prima.

Rationale for acquisition. The group said the proposed acquisition will provide longterm certainty to ensure its operations will not be disrupted as well as to mitigate potential rental rates increase in the future. Besides, the group intends to invest in new studios to cater to its growing content production requirements, as well as to consolidate its news gathering operations.

Acquisition price. The acquisition will be made at a price that is 31.8% higher than when it was sold to PNB 3 years ago. The implied land cost from this acquisition is RM1,030psf. For comparison, (i) neighbouring building Menara Mutiara (1 minute drive away) is listed for sale at RM562.5psf for a total of 800 sq ft size (Figure #1); and (ii) the acquisition of UOA Corporate Tower by UOA REIT (7 minutes away) in Sep 2020 was completed with transaction value of RM729.3psf. Note that UOA Corporate Tower is a grade A MSC building situated in Bangsar South. From these comparisons, it appears that Media Prima’s acquisition is at premium compared to the recent transacted prices around that area.

The other side of the coin. Recall that in July 2020, Media Prima was still considering vacating this building as part of its plan to consolidate its operations, but the plan did not materialize. Instead, its decision now to acquire the building may signal that the company is now more confident of its financial position and that it believes that its earnings are now more sustainable. Its earnings position is also now in a much better standing than what is was in FY17-19, where it posted core losses. Besides that, the company is also looking forward on its future growth by investing in new studios to develop its content production segment. The implied rental savings yield by purchasing the said properties is 5.5% (RM720k x 12 / RM156.4m) which safe to say, is higher than the return on cash in this current low interest rate environment.

Forecast. As at 31 March 2021, Media Prima had a net cash position of RM212.3m. After the purchase, its net cash position will drop to RM56m. The purchase is also expected to provide rental savings to Media Prima at ~RM8.6m per annum (~51.5% of FY21f core earnings). We leave our forecasts unchanged, pending completion of the acquisition.

Upgrade to BUY from Hold following the share price weakness (-32.1%) since our last report on 28 May with unchanged TP of RM0.61 pegged to P/B multiple of 1.0x. We believe that Media Prima’s future earnings growth will be supported by its home shopping business, digital segment as well as from the stronger adex sales through its integrated advertising solution OMNIA. Coupled with a leaner cost structure, its earnings are now more sustainable which should weather through short term headwinds.

Source: Hong Leong Investment Bank Research - 5 Jul 2021