Media Prima (MEDIA) posted yet another disappointing report card for 9M18. Moving forward, the on-going evolution of the traditional media is set to persist, thus any light from the tunnel is only likely to happen in mid-late 2019 rather than earlier. 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. 9M18 core LATAMI of RM71m (vs. –RM78m in 9M17) came in below expectations at LATAMI of RM68m/RM53m of our/consensus’ full-year estimate. On our end, the key negative deviations were mainly due to our lower-than-expected advertising revenue coupled with higher-than-expected direct and overhead costs. As expected, no dividend was announced during the quarter.

YoY, 9M18 turnover inched higher by 1% to RM895m, as the higher contribution of the Digital Media (+80% to RM64m, thanks to better digital advertising revenue of Rev Asia), Home Shopping (63% to RM152m, driven mainly by greater exposure on MyTV and higher numbers of live shows) and Outdoor segments (+3% to RM125m 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 narrow its LATAMI to RM20.6m (vs. LATAMI of RM272m in 9M17 as a result of one-off impairment of investment in an associate and payment of an early retirement scheme in August 2017) after disposing its 21.4% stake in MNI S/B for RM45.4m (where the investment was fully written down in FY17) in 2Q18. Stripping off the EI elements, MEDIA’s core LATAMI was RM71m in 9M18 vs. –RM78m a year ago. The group’s Odyssey transformation plan (mainly supported by its Home Shopping segment) continued to grow and recorded higher turnover of RM220m (+76%) with narrowed LATAMI of RM23m vs. RM27m a year ago.

QoQ, revenue dipped by 20% due to declining trend of core advertising and circulation revenue. Group’s core LATAMI widened to RM31m (vs. –RM18m in 2Q18), due mainly to the lower turnover.

Outlook remains cloudy. The relatively high direct and overhead costs are expected to continue to dampen the group’s overall performance amid persistently weak ads revenue. Outlook-wise, the on-going evolution of the traditional media is expected to remain. Any light from the tunnel is only likely 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 streams.

Earnings remain under pressure. Post results-review, we have slashed our FY18E LATAMI by 45% to RM99m after revising our adex revenue, direct and overheads' cost assumptions to reflect the latest trend. Our FY18 reported PATAMI, meanwhile, is lowered to RM79m (vs. RM109m previously), after incorporating the weak 3Q18 performance. Moving to FY19, we continue to remain cautious in our estimates and expect a LATAMI of RM13.0m (vs. RM15m previously, post tweaking our overhead cost assumption marginally) as any light from the tunnel is only expected to be seen in mid-late FY19 based on the group’s latest transformation journey progress.

Maintain UNDERPERFORM rating with an unchanged TP of RM0.300, based on FY19 targeted P/NTA of 0.86x (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 regulatory environment; and (iv) better-than- expected Odyssey strategy performance.

Source: Kenanga Research - 22 Nov 2018