Media Prima (MEDIA) posted a disappointing report card for FY16 due to lower-than-expected advertising revenue and newspaper sales as well as higher OPEX. Post results review, we lowered our FY17E core PATAMI by 6% (after lowering margin assumptions on the back of higher overhead costs) and take the opportunity to introduce our FY18E numbers. Moving forward, the group’s outlook remains challenging in view of the uninspiring adex outlook. With no immediate catalyst ahead, we maintained our UNDERPERFORM call on MEDIA but with a lower target price of RM0.85 (vs. RM0.90 previously) based on unchanged targeted FY17E PER of 10.7x.

Below expectation. FY16 core PATAMI of RM39m (-72% YoY) came in way below expectation at 63% of our, and 56% of the street, full-year estimates. Key negative variances on our end were mainly due to lower- than-expected advertising revenue from both TV and print as well as higher-than-expected overhead cost. On the reported basis, the group recorded LATAMI of RM59m in FY16 after incurring one-off restructuring expenses of RM98m from the print platform (which comprised of: (i) RM76.5 impairment of property, plant and equipment, (ii) RM20m retrenchment costs and other closure costs, and (iii) RM1.5m allowance and write-off of inventories). The rationale of the restructuring is to optimizing the group’s printing plant capacity to unlock potential cost savings. Dividend of 4.0 sen was announced, bringing the full-year DPS to 8.0 sen (FY15: 10.0 sen), higher than our earlier 6.5 sen estimate. YoY, FY16 net revenue came in lower at RM1.3b (-10%), no thanks to the lower advertising revenue and newspaper sales, but partially cushioned by its new home shopping business contribution (c.RM61m). Its print segment revenue, meanwhile, dived by 23% to RM415m with LAT (excluding a one- off RM98m restructuring costs) of RM26m. Group’s EBITDA plunged by 50%, in tandem with lower revenue recorded and start-up costs as well as higher OPEX from its home shopping business. QoQ, revenue was flat at +1% to RM318m with EBIT stood at RM8.1m as a result of higher-than- expected OPEX that led by taller overhead expenses (10% QoQ).

Challenging time remains. While management expects the country’s adex to growth by c.3%-5% in CY17 (underpinned by various adex-friendly sport events), we, however, believe these feel-good factors are likely to be offset by the: (i) weak MYR against USD, (ii) rising cost of doing business, and (iii) subdued global economy outlook. Thus, we are maintaining our flattish annual growth rate estimate in our model. On the Home shopping business front, the group remains hopeful in achieving RM120m turnover in 2017 (driven by more live shows, time slots and expansion beyond MEDIA’s platform) and break even a year later. We, however, remain cautious and merely expecting the segment to record c.RM95m turnover in FY17. Besides, we also understand that MEDIA has engaged an external consulting team to paint out the group’s direction where the finding is expected to be finalise by end-1H17.

No solid update on transmission cost structure as both parties are still finding ways to compromise on the rate. Having said that, we understand MEDIA is feeling comfortable with the fee coming in close to its current rate (c. RM6m/channel/year). Note that, press has earlier reported that MYTV Broadcasting S/B has agreed to lower its fees for digital terrestrial television (DTT), following complaints from FTA players. The annual fee of each SD channel is proposed to be reduced to ‘a high range of seven figures (vs. RM12m previously) while HD channels fee will be based on programs required bandwidth rather than the RM25m proposed earlier. The above-mentioned proposed fees, however, has yet to coincide with MEDIA.

Source: Kenanga Research - 24 Feb 2017