MEDIA is buying over REV Asia Holdings S/B (an advertising and social media arm of REV Asia Bhd) for RM105m in cash to create Malaysia’s largest digital media company. While we concur with the management’s digital road path, the rapidly changing and evolving Internet industry kept us conservative and there are no changes to our FY17E/FY18E numbers for now, pending the upcoming result release. With no immediate catalyst ahead coupled with still challenging adex outlook, we reiterate our UNDERPERFORM call on MEDIA with an unchanged target price of RM0.94.

Expanding its digital reach. MEDIA has announced a landmark acquisition of 100% equity interest in REV Asia Holdings S/B for RM105m in cash. The subsidiaries which are excluded from the proposed acquisition will be disposed by REV Asia Holdings prior to completion of the SPA (Figure 1). The planned acquisition is being undertaking by its wholly owned unit Media Prima Digital S/B, which is principally involved in the new media business. The acquisition will result in MEDIA increasing its digital audience reach to 10.4m (5m pre-acquisition), and become the largest Malaysian digital media company and third overall in Malaysia after Google (15.7m) and Facebook (14.1m). The proposed acquisition will be financed through internally generated funds and targeted to be completed by 3QCY17.

Key rationale. Management believes the proposed acquisition will provide an opportunity to solidify MEDIA’s presence in the digital publishing business (via social news segments) and reduce dependency over traditional revenue base. Besides, the group also opines it will provide opportunities to up-sell its digital products and services by having a wider digital audience base in Malaysia.

Who is REV Asia Holdings? REV Asia Holdings, a subsidiary of REV Asia Berhad, is one of Southeast Asia’s leading digital media groups. The company has a strong track record in social media and on-line marketing through a portfolio of well-known on-line consumer brands covering a wide variety of segments, including entertainment, lifestyle and social-millennial English, Malaysia and Chinese's news. Key portals include SAYS, 8Share, JUICE (English segment), Viralcham, Rajaklah (Chinese's segment),

OHBULAN! and SirapLimau (Malay segment). On the financial performance front, REV Asia holdings recorded PAT of RM4.2m (+27% YoY) in CY16 on the back of RM23.5m (+32% YoY) turnover, which was mainly driven by native content-based advertising revenue. Its net asset value stood at RM27.4m in CY16. REV Asia Holdings’ staff strength is currently at c.100 (including the top management team), which will be absorbed by MEDIA post the acquisition.

Conservative stance. While we concur with the management's digital road path, the acquisition price tag appears rich in our view due to the rapid technological change in the evolving Internet industry, which could lead to existing portals losing unique visitors within a short period of time should the group fail to keep pace with technological changes and address customers’ needs.

FY17/FY18E earnings forecasts maintained unchanged for now, pending the upcoming results release. While management is expecting the proposed acquisition to enhance its consolidated earnings moving forward, we, however, are taking a conservative stance and have not factor in any contribution to our earnings model for now. 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 with unchanged target price of RM0.94, based on targeted FY18E PER of 10.7x (-1.0 SD below its 5-year mean).

Source: Kenanga Research - 9 May 2017