Media Prima (MEDIA) posted another disappointing report card, for FY17; thus, prompting us to cut our FY18E PATAMI by 5%. With no immediate catalyst in place, we made no changes to our UNDERPERFORM call on MEDIA. Its TP, meanwhile, is reduced to RM0.53 (vs. RM0.550 previously) based on targeted FY18E P/BV of 0.76x, implied an unchanged -2.0SD below its 5-year mean.

Hit by higher-than-expected impairment charges. FY17 core LATAMI of RM153m (vs. RM38.7m PATAMI a year ago) came in way below expectations (as both the street and we were expecting the group to deliver RM89m as well as RM67m LATAMI for the full financial year) due to cleaning up legacy assets and resizing of Group’s workforce to align with the group’s future direction. 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: (i) RM142.4m one-off cost from impairment of MNI, (ii) RM52.3m cost incurred for the early retirement scheme (ERS), and (iii) impairment of PPE & intangible assets of RM220.4m.

YoY, FY17 net revenue came in lower at RM1.2b (-7%), as the improvement in the Home Shopping segment (+111% to RM130m) 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 14% as FTA TV remained pressured by the weak adex sentiment. The segment incurred a LAT of RM113m (FY16: RM22m PAT) as a result of the lower revenue, compensation and provision for manpower rationalization of RM14.4 and net movement of deferred tax of RM28m. Excluding the EIs, TV segment would post a much lower LAT of RM77m. Its print segment revenue, meanwhile, dived by 22% to RM323m with LAT of RM433m vs. –RM124m a year ago due mainly to the RM315m EIs (impairment of associate-MNI, impairment of printing plants, and staff costs rationalization plan). QoQ, revenue improved by 6% due to declining trend of core advertising revenue and exceptional items amounting to RM303m. If the EI is excluded, the group would post an LAT of RM82m vs. RM53 LAT in the preceding quarter.

Updates on Odyssey strategies. Management continued to accelerate its business transformation plan and set to grow its new businesses powered by its Odyssey strategies. The group 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, and expanding beyond Malaysia. While BAU revenue declined by 17% YoY, Odyssey revenue has improved by >100% YoY to RM169m in FY17 (mainly driven by its Home Shopping business) but still suffering LBITDA of RM45m during the gestation period. We understand 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.

Not out of the woods yet. Despite the group aiming to start a new chapter in FY18 (followed the completion of various impairment charges in FY17), we believe the outlook of the group remains challenging judging from the subdued adex outlook. Any light from the tunnel is only expected to happen in 2H18 should MEDIA is able to continue its transformation journey in defending traditional revenue sources while increasing efforts in growing new revenue streams.

Maintained UNDERPERFORM call. The disappointing FY17 performance has led us to slash our FY18E core earnings by 5.3%, after imputing higher direct and OPEX assumptions. Meanwhile, we also take this opportunity to introduce our FY19E numbers. With no immediate earnings catalysts in place, we are keeping our UNDERPERFORM rating to the stock.

Source: Kenanga Research - 23 Feb 2018