We expect 2020E to be a challenging year for most businesses, including media operators. MPR’s ad revenue will likely be affected as advertisers turn more cautious on the economic outlook, circulation is affected by the MCO and home shopping by consumers cutting back on their spending. Nevertheless, we believe this will be partly mitigated by cost savings from the recent staff-rationalization exercise. We maintain our HOLD rating on MPR and 12-month TP of RM0.12, based on an unchanged target P/NTA of 0.7x.

Still Loss-making, But Losses Expected to Narrow in 2020E

We expect 2020E to be another challenging year for Media Prima (MPR), given uncertainties surrounding the Covid-19 situation and its impact on global and domestic economies. We project a core net loss of RM44m for MPR in 2020E, narrowing from a loss of RM62.9m in 2019. We take comfort that management is taking various measures to unlock the value of its existing assets through digital innovation and commerce-oriented strategies on top of cost-rationalization exercises to drive future earnings.

Adex Likely to Remain Weak, Circulation Affected by MCO

MPR’s total ad revenue has been on a downtrend and due to Covid-19 and a lack of mega events this year, we see the adex market remaining soft in 2020. Advertisers are likely to be more cautious on ad spend given the expected deterioration in the economy due to Covid-19. Also, the government’s movement control order (MCO) adversely affects newspaper circulation for March-April. During the MCO, MPR’s Shah Alam printing plant utilization rate is c. 35-40%, down from c.50-60% before the MCO.

Home-shopping Unlikely to be Spared

As citizens embraced social distancing as a way to slow the spread of Covid-19, we believe there could potentially be an increase in online shopping for certain sub-sectors. For MPR, we expect its home shopping division to potentially see a slight yoy increase in sales in 1Q20 (JanuaryFebruary 2020 sales are higher yoy) due to more buyers tuning in to their TV channels and online, and purchasing more items. Nevertheless, subsequent quarters might be affected as citizens cut back on their spending due to concerns about the economy and job safety.

Maintain HOLD Rating With a TP of RM0.12

We make no change to our earnings in this report. We maintain our HOLD rating on MPR and 12-month TP of RM0.12, based on an unchanged target P/NTA of 0.7x.

Source: Affin Hwang Research - 7 Apr 2020