We walked away with a muted view after attending MEDIA’s investor day yesterday. The key highlights were its challenges, business strategies, and updates of each division. MEDIA aims to widen its non-ads, non-TV & print segment contribution and expedite its digital transformation to drive content monetisation. All in, 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.

Inside Out. MEDIA organised an investor briefing that was led by Amrin Bin Awaluddin, MEDIA’s Group Managing Director and his key management team in each unit, including Mohamad Ariff (CFO), Datuk Kamal (CEO – head of Communications Unit), Rafiq (CEO – Media Prima Digital) and others. Management has shared its challenges and opportunities of each division as well as the strategies moving forward.

The evolution of media. While MEDIA making no secret that its traditional media platform is facing a great challenge, the group also sees opportunities arise during the evolution of traditional media. The challenges, which MEDIA believes, include (i) subdued adex outlook as a result of the rising cost of living, (ii) heightened competition that followed the emergence of social networks, (iii) change in technology has reduced the barrier to entry of social network as well as to create massive disruption to the traditional media; and (iv) change in consumer habits, behaviour and lifestyle. Stepping into the place of traditional media has been digital media, which has grown stratospherically over the past few years with the mass migration audiences to the internet.

Increase non-ads and digital presence. Management believes its over dependence on the local TV & print advertising revenue as well as the lack of digital presence were the key downfall of its current media platform. MEDIA is set to sail through the challenging wave by focusing to speed up digital transformation as well as widening the non-ads segment contribution. MEDIA is aiming to expand the digital-based revenue to 20% (from 5% currently) as well as widen the non-ads, non-TV & Print segment revenue to 40% each (from 20% each, currently) by year 2020. Besides, the group also aims to expand its reach beyond Malaysia and expect the regional market to contribute 10% of its revenue, up from 2% presently.

Odyssey strategies. Besides defending its core and strengthening operational efficiency, the group is set to focus and cross-sell each medium’s strengths (to become the market leader in broadcast and digital publishing), growth in commerce through integrated media, as well as expanding beyond Malaysia. Management has used its TONTON platform (Malaysia’s number one video portal) as an example to showcast its Odyseey strategy, where the portal has recorded 6.8m registered users with 1.1m monthly views. Besides partnering with CJ WOW SHOP (MEDIA’s shopping network), TONTON subscribers who opt for VIP service also able to watch over 30k hours of contents (which include exclusive live events, premium channels and binge-watch shows before it hits TV). TONTON has expanded its regional presence to Singapore via a partnership with Singtel and set to penetrate into another South-East Asia country by 2H17.

Conservative stance. While we concur with the management's digital and transformation road path, the evolution of the traditional media could lead the group to experience some gestation periods over the short-to-medium term. Besides, in view of the rapid technological change in the evolving Internet industry, the existing portals could lose unique visitors within a short period of time should the group fail to keep pace with technological changes and address customers’ needs. All in all, we made no changes to our FY17/FY18E earnings forecast, pending the upcoming result release

Source: Kenanga Research - 18 May 2017