Media Prima (MEDIA) posted another disappointing report card in 1H18. Moving forward, the on-going evolution of the traditional media is set to persist. With no immediate catalyst in place, we made no changes to our UNDERPERFORM call on MEDIA with an unchanged target price of RM0.300. Below expectations. 1H18 core LATAMI of RM40m (vs. -RM29 in 1H17) came in below expectations at LATAMI of RM37m/RM47m of our/consensus’ full-year estimate as MEDIA is expected to remain in losses in the 2H18 albeit with narrower quantum based on the latest sequential quarterly trend. 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, 1H18 turnover improved by 3% to RM622m, as the higher contribution of the Digital Media (+117% to RM45m, thanks to better digital advertising revenue of Rev Asia), Home Shopping (61% to RM96m, driven mainly by greater exposure on MyTV and higher numbers of live shows) and Outdoor segments (+6% to RM87m due to higher yield from digital sites) were largely offset by the weakening of the traditional TV, Radio, and Prints divisions. Despite a slightly improved top-line performance, the group managed to boost its PATAMI to RM10.1m (vs. LATAMI of RM171m in 1H17) after disposing its 21.4% stake in MNI S/B for RM45.4m (where the investment had been fully written down in FY17). Stripping off the EI elements, MEDIA’s core LATAMI was RM40m in 1H18 vs. –RM29m a year ago, QoQ, revenue increased by 22% as core advertising revenue and commerce revenue started to gain momentum, in line with the festive season. Group’s PATAMI surged to RM32m (vs. – RM22m in 1Q18), thanks to the disposal in MNI.

Proposed Sales and Lease-back. In a separate announcement, MEDIA has sold the NSTP’s Balai Berita in Bangsar and the land where its printing plant is located in Shah Alam to PNB Development S/B for RM280m (with the proceed aimed to reduce its debts upon completion). Subsequently, it will enter into tenancy agreements with PNB Development of up to 15 years. The exercise is expected to be completed in 4Q18, which will realise an estimated gain of RM127.7m and to generate total annual savings of RM10m.

Outlook remains challenging. Although MEDIA has shown some slight sequential improvements, the relatively high direct and overhead costs will still continue to dampen the overall performance amid persistently weak ads revenue. Outlook-wise, the on-going evolution of the traditional media is set to continue. Any light from the tunnel is only expected to happen in mid-late 2019 should MEDIA is able to continue its transformation journey in defending traditional revenue sources while increasing efforts in growing new revenue stream.

Earnings remain under pressure. Post results review, we have slashed our FY18E LATAMI by 88% to RM69m after revising our direct and overheads' cost assumptions to reflect the latest trend. Our FY18 reported PATAMI, however, is raised to RM109m, after factoring the disposal of MNI (in 2Q18) and c.RM128m gain on land disposal in 4Q18. Moving to FY19, we are turning more cautious in our estimates (LAPAMI of RM15m vs. PATAMI of RM21m previously) as any light from the tunnel is only expected to be seen in mid-late FY19 (vs. earlier FY19 previously) judging from the group’s latest transformation journey progress.

Reiterate UNDERPERFORM rating with an unchanged TP of RM0.300, after shifting our valuation base year to FY19 with targeted P/NTA of 0.85x (in-line with its historical-low P/NTA) to reflect the negative drift of its valuation. Risks to our call include: (i) better-than-expected advertising revenue, (ii) margin fluctuations, (iii) changes in regulation environment; and (iv) better-than-expected Odyssey strategy performance.

Source: Kenanga Research - 03 Sep 2018