Media Prima FY21 core PATAMI of RM50.7m (+6.1x YoY) beat our (146%) and consensus (132%) expectations. The results beat was due to stronger-than expected advertising revenue. We increase our FY22/23 earnings by 15.3%/4.8% to account for stronger advertising revenue going forward. Maintain BUY with a higher TP of RM0.72 based on 12x FY22 EPS of 6.1 sen. We expect advertising revenue to remain strong mainly due to an adex recovery in the TV segment which is supported by (i) increase in adex from e-commerce shops and platforms; and (ii) the return of advertisers to traditional broadcasting platforms. In addition, the group also has an attractive projected FY22 dividend yield of 6.8%.

Exceeded expectations. Media Prima’s 4Q21 core PATAMI of RM28m (+9x QoQ; +11% YoY) brought FY21’s sum to RM50.7m (+6.1x YoY) which made up 146%/132% of our and consensus estimates. The results beat was due to stronger than-expected advertising revenue. FY21 core PATAMI is computed after adjusting for (i) impairment reversal of financial instruments (RM1.9m); (ii) forex loss (RM200k); (iii) allowance for obsolescence of inventories (RM70k); (iv) reversal of termination benefits (RM2.4m); and (v) gain on disposal of PPE (RM413k).

Dividend. 1.5 sen, ex-date: 29 Apr 2022 (4Q20: none). FY21: 1.5 sen (FY20: none).

QoQ & YoY. Revenue increased +22.8% QoQ and +6% YoY mainly lifted by advertising (+41.6% QoQ, +21% YoY) and content sales (+66.3% QoQ, +1.5x YoY) while partially offset by home shopping (-21.9% QoQ, -34.6% YoY). The strong increase in advertising revenue was driven by major advertising campaigns, including Lazada, Shopee, Anugerah Bintang Popular Berita Harian as well as early Chinese New Year advertising campaigns. Content sales continue to see positive growth momentum as the group expanded its content sales to OTT platforms and foreign broadcasters. The decline in home shopping is due to a reversion in consumers shopping towards physical retail stores as they reopen in 4Q21 following the easing of restrictions. Consequently, core PATAMI increased by +9x QoQ from a low base of RM2.8m and +11% YoY in line with the top line increase.

YTD. Revenue increased by +7.5% contributed by advertising (+15.9%), content sales (+2x) while partially offset by home shopping (-13.3%) due to the same reasons as mentioned above. Core PATAMI increased by +6.1x due to the increase in revenue coupled with lower operating expenses.

Outlook. While 4Q is typically a seasonally stronger quarter for Media Prima due to year end spending by advertisers, we still see a robust growth in advertising revenue even on a YoY basis mainly lifted by the increase in TV adex. We expect FTA TV adex to remain strong going forward due to (i) e-commerce shops and platforms increasingly utilizing TV to advertise, especially during e-commerce sales season (11/11, 12/12); and (ii) the return of advertisers to traditional broadcasting platforms as they adopt an omni-channel advertising approach to capitalize on the different demographic and reach offered by the traditional media platform. Furthermore, we are optimistic about the group’s successful efforts to monetize its large content library as evidenced by the sequential growth in its content sales.

Forecast. We increase our FY22/23 earnings by 15.3%/4.8% to account for stronger advertising revenue going forward.

Maintain BUY, TP: RM0.72. We switch our valuation methodology to P/E (from P/B) following the group’s successful turnaround and its improving earnings prospects. As such, our TP is increased to RM0.72 (from RM0.61 previously) based on 12x P/E of FY22 EPS of 6.1 sen. Our P/E ratio is slightly below its regional broadcasting peers forward P/E of 14x (see Figure #3). We continue to like Media Prima as we believe the future growth of the company is multi-pronged underpinned by the improved performance from its advertising revenue and the growth in content sales. Furthermore, the group also has an attractive projected FY22 dividend yield of 6.8%.

Source: Hong Leong Investment Bank Research - 24 Feb 2022