Media Prima (MEDIA) posted another disappointing report card, for 9M17, thus prompting us to slash our FY17-18E PATAMI by >100%/40%. With no immediate catalyst coupled with potentially more kitchen sinking exercises ahead, we made no changes to our UNDERPERFORM call on MEDIA. Its TP, meanwhile, is reduced to RM0.600 (vs. RM0.650 previously) based on targeted FY18E P/BV of 0.55x, implied an unchanged -2.0xSD below its 5-year mean.

Failed to deliver again. 9M17 core LATAMI of RM77.8m (vs. RM40.4m PATAMI a year ago) came in way below expectations as both the street and ours were expecting the group to deliver RM2.6m as well as RM16.9m PATAMI for the full financial year. Key negative variances on our end were mainly due to higher-than-expected direct and overhead costs. Absence of dividend was also not a surprise to us judging from its frail financials. Our core LATAMI was derived after removing the (i) RM142.4m one-off cost from impairment of MNI and (ii) RM52.3m cost incurred for the early retirement scheme (ERS).

YoY, 9M17 net revenue came in lower at RM890m (-8%), as the improvement in the Home Shopping segment (+148% to RM93m) was not enough to offset the lower advertising revenue as well as newspaper sales (due to the subdued adex and the shift to digital media). The group’s TV segment contracted by 18% as FTA TV remains pressured by the weak adex sentiment. The segment incurred a LAT of RM55m (9M16: RM21m PAT) as a result of the lower revenue, one-off exceptional item (EI) of RM7.4m in the ERS and RM30.8m gestation losses on TV Odyssey initiatives. Excluding the gestation losses & oneoff EI, TV segment would post much lower LAT of RM17m. Its print segment revenue, meanwhile, dived by 19% to RM264m with LAT of RM209m vs. –RM125m a year ago due mainly to the RM195m EI (impairment of associate-MNI and ERS payment). QoQ, revenue was reduced by 12% due to declining trend of core advertising revenue and ERS payment of RM52.3m. If the ERS payment is excluded, the group would post an LAT of RM52.9m vs. RM4m PAT in the preceding quarter.

Updates on Odyssey strategies. While remaining true to core competencies, management continued to grow its new businesses powered by its Odyssey strategies. MEDIA is set to continue focusing and cross-selling 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. While BAU revenue declined by 18% YoY, Odyssey revenue has improved by >100% YoY to RM119m in 9M17 (mainly driven by its Home Shopping business) but still suffering LBITDA of RM34m during the gestation period. Note that, MEDIA is aiming to expand the digital-based revenue to 20% (from 5% currently) as well as widening the non-ads, non-TV & Print segment revenue to 40% (from 20% 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.

Kitchen sinking exercise may be continued. With the Odyssey strategies in place, the group is set to further optimise its costs structure to align with its digital transformation journey. Despite the group’s staff strength lowered by c.200 (to 3.9k) post the ERS payment in 3Q17, management believes there are still rooms to further review its operating and overhead costs to enhance efficiency.

Maintained UNDERPERFORM call. The disappointing 9M17 performance has led us to slash our FY17/FY18E core earnings to LATAMI of RM88m and RM26m (-40%), respectively, after imputing higher direct and OPEX assumptions. 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 medium term. With no immediate earnings catalysts in place, we are keeping our UNDERPERFORM rating to the stock.

Source: Kenanga Research - 30 Nov 2017