Media Prima (MPR) posted a 9M19 core net loss of RM70.4m, widening from a core net loss of RM55.9m in 9M18. The result was below our previous full-year projection of a core net loss of RM82m, with the variance largely from a lower-than-expected contribution from the TV and OOH segments. In view of the lacklustre results, we now project higher core net losses of RM103m/RM81m/RM67m for 2019-21E respectively. Nevertheless, we believe the stock has drifted into a fair range at the current level of 1.4x P/NTA (1SD below 3-year average), following the recent sharp share-price correction. As such, we upgrade MPR to a HOLD (from SELL) at a lower TP of RM0.30, pegged at an unchanged 1.5x 2020E NTA per share.

Core Net Loss of RM70.4m in 9M19, Below Expectations

MPR posted a weaker 9M19 revenue of RM801.4m (-10.4% yoy), on the back of sustained weakness from traditional media such as TV (-11%), print (-27%), out-of-home (“OOH”) (-7%), and radio (-31%). The declines were partially offset by higher contribution from digital (+6%), content (+20%) and home-shopping (+12%). The home shopping division continued to show steady growth momentum, attributed to greater airtime driving higher sales of merchandise. Excluding one-off items (comprised of forex loss, impairments and gain on disposals), 9M19 core net loss came in at RM70.4m vs RM55.9m in 9M18. This came below our previous expectation of a fullyear core net loss of RM82m with the variance largely from lower-thanexpected contribution from the TV and OOH segments which disappointed on more cautious ad spending by advertisers.

Sequentially Down Post a Festive Quarter

Sequentially, MPR’s 3Q19 revenue came in lower at RM265.5m (-11% qoq) as most segments, with the exception of the content division, saw a decline post the festive season in 2Q19. The quarter also incurred a higher depreciation cost of RM49m vs RM29m in 2Q19, resulting from the adoption of MFRS 16. The 3Q19 core net loss widened to RM23.7m subsequently from RM9.6m in 3Q18 excluding one-offs.

Upgrade to HOLD With a Revised TP of RM0.30

We now project higher core net losses of RM103m/RM81m/RM67m for 2019-21E respectively, in view of the lacklustre results and to account for a likely weaker performance from traditional media segments, in particular TV and OOH which continue to be impacted by increasingly cautious spending by advertisers. We lower our target price to RM0.30 pegged at an unchanged 1.5x 2020E NTA per share. Following the 28% collapse in the share price over the past month, we believe the stock has now drifted into a fair range (1.4x Price/NTA). Hence, we upgrade MPR to a HOLD rating from SELL.

While we acknowledge the challenging operating environment is likely to persist for traditional media, we keep our eye on potential positive developments which could lend support to the share price in the near term, such as the: i) growing top-line contribution from home-shopping and digital segment (9M19 revenue contribution of 25% vs 20% in 9M18), ii) continual cost rationalisation initiatives, and iii) potential business restructuring plans by the new major shareholder, Aurora Mulia.

Key Risks

Upside/downside risks to our HOLD recommendation: 1) major restructuring plans by the new major shareholder that improves long-term prospects, 2) an MGO is triggered; 3) higher/lower-than-expected adex revenue; 4) a substantial increase/decline in hard-copy newspaper circulation; and 5) a significant increase/decline in contributions from the digital and homeshopping businesses.

Source: Affin Hwang Research - 22 Nov 2019