Media Prima (MEDIA) posted yet another disappointing report card for FY18. Moving forward, the on-going evolution of the traditional media is set to persist, thus any meaningful earnings contribution may only be seen post FY19 in view of the long transformation journey. With no immediate catalyst in place, we made no changes to our UP call on MEDIA with an unchanged target price of RM0.300.

Below expectations. FY18 core LATAMI of RM106m (+31% YoY) came in below expectations of house/the street’s full-year estimates (at –RM99m/-RM81m, respectively). On our end, the key negative deviations were mainly due to our higher-than-expected overhead costs. As expected, no dividend was announced during the quarter. Note that, our core LATAMI was derived after removed the gain on disposal PPE of RM138m, reversal of impairment in an associate of RM46m and added RM19m termination benefits.

YoY, the significant revenue growth was recorded from the Digital (57% to RM87m, thanks to higher digital advertising revenue of Rev Asia (at c.RM40m)) and Home Shopping (65% to RM213m, due to greater exposure achieved from 24-hour transmission on MyTV and UnifiTV, as well as more production of live shows) which cushioned the marginal decline (by 1%) in the traditional advertising and newspaper sales. Despite flattish turnover, its EBIT returned to the black RM80m ((vs. – RM586m in FY17) as a result of the disposal gain on its PPE, shares in an associate, as well as forex gain of RM205m) and record a reported PATAMI of RM59m (vs. –RM651m a year ago). Stripping off the EI elements, the core LATAMI come in at RM106m, narrowed from – RM153m a year ago. The group’s Odyssey transformation plan (mainly supported by its Home Shopping segment) continued to grow and recorded higher turnover of RM301m (+71%) but with a similar LATAMI of RM36m vs. RM35m in FY17.

QoQ, revenue improved by 6% due to better performance from all segments, except the newspaper division. Group’s core LATAMI, however, widened to RM40m (vs. –RM31m in 3Q18), due mainly to higher OPEX.

Cloudy outlook remains. 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 be seen in 4Q19/FY20 should MEDIA is able to accelerate revenue generating initiatives by maximising available assets and leveraging on extensive reach via digital and non-digital platforms. Continuous cost management will still be the priority in FY19.

Earnings remain under pressure. While management expects its core numbers to improve in FY19 (underpinned by its continued Odyssey transformation plan and various cost optimisation initiatives), we believe, any meaningful earnings contribution may only be seen post FY19 in view of the long transformation journey. As a result, we have widened our core LATAMI for FY19 to –RM53m (vs. –RM12m previously) after raising our overhead costs assumption post the results review. Meanwhile, we also take this opportunity to introduce our FY20 numbers.

Maintain UNDERPERFORM rating with an unchanged TP of RM0.300, based on FY19 targeted P/NTA of 0.95x (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 - 28 Feb 2019