Media Prima recorded 4 consecutive quarters of core profits after it returned to black in 3Q20. Its successful turnaround can be attributed to (i) major business restructuring including manpower rationalization, integration of different advertising teams under Omnia and monetizing its spare printing capacity; and (ii) the growth of non-advertising revenues including home shopping and content sales. Its diverse revenue base allows the company to weather through business cycles that affects any particular segment. Maintain BUY with an unchanged TP of RM0.61 pegged to unchanged P/B multiple of 1.0x based on FY22 BVPS.

Media Prima recorded 4 consecutive quarters of core profits after it returned to black in 3Q20. Much of the group’s transformation efforts took place in FY20. In this report, we delve deeper into what contributed to the group’s successful turnaround and where we think the group will be headed to in the future.

Retrenchment exercise. Media Prima went through 2 rounds of retrenchment in FY20 that were completed in March 2020 (c.900 employees) and Aug 2020 (c.300 employees). Based on Media Prima’s FY20 annual report, the number of employees as at 31 Dec 2020 was 2,332 (vs. 3,689 in 2019 or -36.8% YoY). Based on FY19 annual report, Media Prima incurred total employee cost of RM348.4m (excluding termination benefits), which translated into RM94.4k/employee per annum. The reduction in headcount thus implied a savings of RM128.2m per annum. To put this in perspective, this is 12.3% of FY20 revenue; or alternatively, if this was added back to FY19 core loss of -RM61m, this would result in core earnings of RM67m. This exercise also indicated the group’s resolve in transformation. Bringing headcount down by -37% was no easy feat as it requires a major business restructuring, including a thorough study of business functions and redundancy, manpower planning on who to retain and let go, reskilling of existing employees, ensuring business continuity and more. With a much leaner team, existing employees will inevitably have to take on more responsibilities which not only require a mind-set change from the employee but also a top-down culture shift in the company to become more agile and adaptable to the constant change in the industry.

Omnia. The group’s advertising revenue was on a steep decline over the years. In just 5 years, advertising revenue was almost halved from RM1.23bn in 2015 to RM642.9m in 2020 (Figure #1). The decline can be largely attributed to (i) multinational advertising tech giants such as Google and Facebook took up a large slice of advertisers’ expenses; and (ii) decline in the popularity of traditional media. The increasingly more varied options to consume content led to the diminishing share of traditional media in the industry. The introduction of Omnia in 1 April 2020 was an attempt to defend and reinvigorate the advertising revenue for the group. Prior to Omnia, each advertising arm worked independently and was not capable in cross-selling. Under Omnia, all advertising departments including broadcasting, publishing, digital and out-of-home were integrated into one team. Instead of selling individual advertising slots, customers were instead offered with an advertising solution that is tailored to their needs based on the products and target audience. The advertising solution will bundle up and cross-sell different ad spaces from broadcasting, publishing, digital and out-of-home. Furthermore, capitalizing on its in-house content production capabilities, Media Prima also helps advertisers to produce advertising contents. For example, Media Prima had produced curated live shows and concerts for Shopee and Lazada. Thus, the revenue for Omnia is two-pronged: (i) advertising; and (ii) content production. This new approach has started seeing results in FY21, where advertising revenue in 1H21 recorded a 21.6% YoY increase from SPLY.

DidikTV. On 17 Feb 2021, NTV7 was rebranded to ‘DidikTV KPM’. DidikTV is a strategic commercial collaboration between Media Prima and Ministry of Education (MOE) where it broadcasts edutainment programmes comprising curriculum from pre-school to Form 6. Under the arrangement, the production of the programs for the channel is funded by MOE. Thus, the channel is value accretive from the onset. It also makes commercial sense to select NTV7 as the channel to be rebranded to DidikTV as it commands the lowest audience share among Media Prima’s FTA TV brands (1.0% audience share among Malaysia TV channels). Furthermore, DidikTV is also a notable ESG initiative from the group as it provides additional access to education at home during lockdown, especially to students in the rural areas. However, since DidikTV is a channel with niche content targeting students with low spending power, the external advertising revenue derived from the channel will likely be minimal. Furthermore, NTV7 was one of WOWShop main broadcasting channels, thus, WOWShop will lose this medium as its avenue to acquire customers. Nonetheless, we believe that the revenue from MOE will outweigh the loss of revenues from external advertising and home shopping.

Newspaper printing and distribution. Similar to advertising revenue, newspaper sales were also on a steep decline. In just 5 years, revenue was down 73.6% to RM47.2m in 2020 (Figure #1). The decline in sales left plenty of spare capacity in the group’s printing plants. Since 1 January 2020, the group utilizes its spare printing capacity and started providing printing services for other publishers, creating a new source of revenue for the group. To date, it is providing printing services for 8 external customers including The Malaysian Reserve, Selangor Kini, Buletin Mutiara and more. The printing distribution segment has seen encouraging growth recording RM9.8m revenue in 1H21 (vs. RM4.2m or +130% in 1H20).

Home shopping. The home shopping segment is the crown jewel of Media Prima. On 1 Sep 2020, the group acquired the remaining 49% stake in WOWSHOP for a cash consideration of RM5m. The venture into the segment paved way for the group to diversify into non-advertising revenue and cushion the decline in advertising and print revenues. The segment turned positive for the group’s bottom line in FY20 (just under 5 years since it ventured in to the business) with RM10.2m PAT (vs. -RM10.6m in FY19). The swift growth in the platform was attributable to Media Prima’s wide reaching broadcasting platforms. Nonetheless, we have witnessed that the growth of this segment has started moderating in FY21, with 1H21 revenue recording RM151.7m (-0.7% YoY). We believe the moderation was due to (i) the higher base in FY20 when Malaysia went through its first lockdown under MCO; (ii) the loss of NTV7 as one of its main broadcasting channels to recruit customers; and (iii) the lower household income and consumer sentiment during the period. The future growth on this segment will depend on (i) whether it can expand into new avenues to air its home shopping programs (current channels are TV3, 8TV, 9TV, 2 MyTV channels and TV Al-Hijrah); and (ii) the organic / paid growth of the mobile app as a shopping platform.

Content production, sales and distribution. Media Prima has made significant headway in its content sales in FY21. In 1H21, this segment recorded revenue of RM20.7m (vs RM5m in 1H20 or +3.2x YoY). The growth in this segment was mainly due to its successful partnership and distribution to OTT partners including iQiyi, WeTV, Disney+ Hotstar and Netflix as well as to foreign broadcasters including Mediacorp Singapore and MNCTV Indonesia. Media Prima plans to invest in new studios to cater for its growing content production requirements. We see vast growth potential in this segment and opine that content production and sales would be the next leg of growth for the company. As an example, the group’s hugely successful animation title ‘Ejen Ali: The Movie’ that was released on 28 Nov 2019 had a grossing of over RM30m in Malaysia cinema (the highest-grossing Malaysian animated film of all time). The movie was also released in Singapore and Brunei’s cinemas, and it was later released on OTT platforms Netflix and Tencent Video China. Capitalizing on the original IP of the movie, Media Prima also released a mobile game (Ejen Ali: Emergency, >5m downloads) and various merchandise (hand sanitizers, fabric mask etc). Thus, we see that beyond the immediate ticket sales from cinema, there is potential to monetize the original content produced through sales and distribution to OTT platforms as well as through merchandise sales. Furthermore, Media Prima’s originally produced vernacular contents are also sought after by foreign OTT platforms especially when they attempt to penetrate into the Malaysian market. With the recent reopening of cinemas in Sep 2021, we may also see new titles released to the cinemas in FY22.

Successful turnaround. Media Prima was in the red from FY16-20, but it is now on track to deliver its first full year profit in FY21 despite the adverse adex environment. Its successful turnaround can be attributed to (i) major business restructuring including manpower rationalization, integration of different advertising teams under Omnia and monetizing its spare printing capacity; and (ii) the growth of non advertising revenue including home shopping and content sales. The improved advertising revenue in 1H21 (vs SPLY) is a testament that the group’s strategy is in the right direction and it is able to deliver improved performance even under a leaner team. The future growth of the company is multi-pronged underpinned by the improved performance from its advertising revenue, as well as the positive contribution from its home shopping segment and growth in content production and sales. Its diverse revenue base allows the company to weather through business cycles that affect any particular segment. The media industry is a dynamic and fast changing industry, thus, it requires an organization that is agile and adaptive to be able to navigate and thrive in such an environment. We believe that Media Prima currently led by Mr Rafiq Razali (who came from an entrepreneurial background) is well equipped to tackle the challenges in the media landscape.

Forecast. Unchanged.

Maintain BUY with an unchanged TP of RM0.61 pegged to unchanged P/B multiple of 1.0x based on FY22 BVPS. We believe that Media Prima’s future earnings growth will be supported by stronger adex sales through its integrated advertising solution OMNIA and growing sales in content, home shopping and digital segments.

Source: Hong Leong Investment Bank Research - 20 Oct 2021