Media Prima (MEDIA) posted another disappointing report card for 1Q18. With no immediate catalyst in place, we made no changes to our UNDERPERFORM call on MEDIA. We have revamped our valuation method to P/NTA (from P/BV previously) and reduce the TP to RM0.300 (vs. RM0.400 previously) based on targeted FY18E P/NTA of 1.1x. Below our expectation. 1Q18 core LATAMI of RM22m (vs. -RM39m LATAMI a year ago) came in below our expectation (PATAMI of RM24m) but fairly within the street’s full-year estimate (-RM31m). On our end, the key negative deviations were mainly due to our overly optimistic assumptions on the direct and overhead costs. As expected, no dividend was announced during the quarter.

YoY, 1Q18 turnover improved by 3% to RM281m, as the weakening of the TV segment (-13% to RM93m, as a result of lower FTA-TV adex) was offset by higher contribution from the Home Shopping (59% to RM44m), Radio (20% to RM15) and new media (98% to RM20m) segments. Noteworthy is the 1Q18 revenue growth was the first YoY improvement since 1Q16. Its newspaper segment revenue, meanwhile, declined by 1%, mainly attributed to the lower circulation revenue (-24%) but largely mitigated by higher adex and digital revenue. Despite muted top-line performance, the segment managed to narrow its LAT to RM2.2m (1Q17: –RM17m), thanks to lower production cost and administrative expenses. TV segment, on the other hand, continued to suffer LAT of RM35m (vs. – RM23m a year ago) due to lower turnover coupled with higher overhead cost. QoQ, revenue dipped by 9% as the declining trend of traditional advertising revenue was not enough to offset the growth in digital advertising, content and commerce revenue. Group’s LBT narrowed to RM23m (vs. RM329m in 4Q17) as a result of the absence of impairment of printing plant and early retirement scheme exercise.

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 strength (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 11% YoY, Odyssey revenue has improved by 91% YoY to RM69m in 1Q18 (mainly driven by its Home Shopping business) but still suffered LBITDA of RM3.5m during the gestation period. We understand that MEDIA is aiming to expand the digital-based revenue to 20% (from 7% currently) as well as widening the non-ads, non-TV & Print segment revenue to 40% (from 25% currently) by year 2020. Besides, the group also aims to expand its reach beyond Malaysia and expect the regional market to contribute 10% of revenue, up from 1% presently.

Not out of the woods yet. Although the group’s top-line (except the TV segment) appears to be stabilising, the relatively high overhead cost (where the group has a total headcount of c.4k) continued to dampen the overall performance. As a result, we do not discount that the group may consider to further optimise its overhead cost. Outlook-wise, the on-going evolution of the traditional media is set to persist. Any light from the tunnel is only expected to happen in late-2018, if not 2019 should MEDIA is able to continue its transformation journey in defending traditional revenue sources while increasing efforts in growing new revenue streams.

Maintain UNDERPERFORM rating. The disappointing 1Q18 performance coupled with higher direct and OPEX assumptions have led us to slash our FY18E and FY19E core earnings to LATAMI of 37m (vs. PATAMI of RM24m) and RM21m (-49%) PATAMI, respectively. Besides, we also revamp our valuation method to P/NTA (from P/BV previously) methodology to better reflect the group’s current development (figure 1&2). We valued the group at RM0.300, based on a targeted FY18E P/NTA of 1.1x (in-line with its historical-low P/NTA) to reflect the negative drift of its valuation. With no immediate earnings catalysts in place, we are keeping our UNDERPERFORM rating to the stock.

Source: Kenanga Research - 25 May 2018