9MFY19 LATAMI of RM75.6m (-7% YoY) is below expectations as income streams disappointed, while being overwhelmed by heavy operating costs. Traditional media platforms are losing consumer engagement, while the group needs to expand its digital offerings. On-going cost cutting may cause near-term hurt. We widen our FY19E/FY20E losses by 18.9%/14.2%. Maintain UP with a lower TP of RM0.225 (from RM0.260).

9MFY19 in deep losses. 9MFY19 core LATAMI of RM75.6m is deemed to be below our and consensus full-year expectations of RM81.7m and RM85.9m, respectively. The deviation from the disconcerting results is mainly due to heavier-than-expected expenses from the publishing segments. This is likely due to lower physical distribution and circulation rates from shifting market favour towards digital platforms, which exacerbated operating cost overrun. No dividend was announced as expected.

YoY, 9MFY19 revenue recorded weaker at RM801.4m (-10%) on the back of an overall decline across most platforms from the waning relevance of traditional media. The largest drags came from television (-10%) and publishing (-27%) segments. Only the home shopping segment registered growth (+12%), capitalising on the increasing acceptance of interactive commerce. 9MFY19 core LATAMI came in at RM75.6m (-7%) as the decline in revenue in most segments was overran by direct costs and overheads, in spite of progressive cost optimization efforts put in place.

QoQ, 3QFY19 top-line was weaker by 11%, likely owing to the seasonally fuelled 2QFY19 from Hari Raya festivities. Due to the similar abovementioned factors, core LATAMI for the period was even lower at RM24.2m (-120%).

In need of tighter bandages. The industry looks to continue to be in a lull as consumer transition towards a more digital-savvy landscape. Traditional media platforms such as television are becoming less engaging in the face of online content and international streaming platforms grabbing consumers. Newspaper circulation is also hammered by digital or on-device reading consumption. MEDIA has embarked on cost optimization strategies, which looks to include the streamlining of staff count. While this may further pressure near-term earnings, it could be a necessary evil to keep the group afloat in the longer term. At the meantime, the group seeks digital acquisition opportunities to broaden its presence in digital media as the conventional platforms gradually become obsolete.

Post-results, we further expand our FY19E/FY20E losses by 18.9%/14.2% as the bleak media outlook prolongs with further problems arising from juggling costs across the traditional media segments.

Maintain UNDERPERFORM with a lower TP of RM0.225 (from RM0.260, previously). Our call is based on a 1.0x FY20E P/NTA (inline with its historical-low P/NTA, 1.5SD below its 3-year mean) to reflect the on-going structural challenges that the industry faces.

Risks to our call include: (i) better-than-expected advertising revenue, (ii) margin fluctuations, (iii) changes in the regulatory environment, and (iv) better-than-expected Odyssey strategy’s outcome.

Source: Kenanga Research - 22 Nov 2019