FY19 core LATAMI of RM61.8m came above expectations due to stronger delivery of cost savings initiatives. With this 4QFY19 results registering core profit, we anticipate a turnaround in FY20 on a less stressful cost environment in the traditional media front, supplemented by growth in nonadvertising revenue streams. Though we maintain our TP of RM0.225, we upgrade it to OP (from UP) as the selling down of the stock post-results could be overdone.

FY19 posted lower losses than expected. FY19 core LATAMI of RM61.8m is deemed to be better-than-expected as our and consensus estimates had called for LATAMI of RM97.2m and RM96.0m, respectively. Adjusting for one-off termination benefits and impairments (from the group’s television and print segments), operating cost savings appear to be better-than-expected, with 4QFY19 reporting an adjusted PATAMI of RM11.6m. No dividend was declared, as expected.

YoY, FY19 revenue was softer at RM1.11b (-7%) owing to weakness across most major platforms from the diminishing relevance of traditional media channels, mainly from television (-8%) and publishing (-20%). The home shopping segment was the outlier, improving by 9% from the increasing acceptance of CJ WOW Shop’s interactive platform. Adjusting for restructuring items incurred (i.e. one-off impairment, termination benefits), the group registered a FY19 LATAMI of RM61.8m, an improvement from FY18 LATAMI of RM111.1m.

QoQ, 4QFY19 revenue was better by 15%, thanks to an overall more robust demand for advertising and media consumption with the yearend holiday seasons. Post-adjustments, 4QFY19 reported a PATAMI of RM11.6m as compared to 3QFY19 LATAMI of RM24.2m.

A successful odyssey. The group has conducted a restructuring scheme to rationalise its manpower needs, particularly for the television and publishing segments which should be completed by March 2020. For now, management believes the right-sizing was sufficient of which cost savings could amount up to RM80m. The group also aspires to optimise its print-flows by catering to external publications. Cost-cutting aside, the group’s expanded revenue streams (i.e. CJ WOW Shop, digital collaborations) provide a cushion for the group against the decline in traditional media outlets. On the flipside, the group is steadfast in maintaining its market share within the advertising space by enhancing its advertising solutions capabilities.

Post-results, we adjust our FY20E earnings to incorporate a less stressful cost environment and now expect the year to be profitable with PATAMI of RM25m (from LATAMI at RM53m, previously). We introduce our FY21E numbers which we also expect to be profitable at this juncture.

Upgrade to OUTPERFORM (from UNDERPERFORM) with an unchanged TP of RM0.225. Our valuation remains pegged at 1.0x FY20E P/NTA (1.5SD below the stock’s 3-year mean). We choose to maintain our valuations for now and not adopt a PER valuation method as we believe the market could still be skeptical of the consistency of the group’s earnings delivery. That said, it is likely that the intra-day sell-down could have been overdone, owing to the misinterpretation of the 4QFY19 profits. While the stock is not likely to pay dividends in the near-term, we believe the now reinvigorated sustainability of the stock should be considered.

Risks to our call include: (i) lower-than-expected advertising revenue, (ii) higher-than-expected operating expenses, (iii) changes in the regulatory environment

Source: Kenanga Research - 27 Feb 2020