9MFY20 core LATAMI of RM25.9m (+66%) beat estimates as the group sealed a profitable quarter thanks to earlier right-sizing efforts. While we raise our FY20E/FY21E earnings by 77%/148% to account for a possibly sustainable turn-around, the overall industry outlook remains soft as digitalisation continues to threaten the dependency on traditional media outlets. On another note, Home Shopping (CJ Wowshop) is expected to continue gaining ground. Maintain UP but with a higher TP of RM0.155 (from RM0.105)

9MFY20 outpaced expectations. 9MFY20 core LATAMI of RM25.9m is deemed to be above our/consensus FY20E LATAMI of RM51.5m/RM60.0m, respectively. The positive deviation is due to effective cost streamlining (mainly in the key broadcasting and publishing segments) which drove 3QFY20 to report PATAMI of RM12.4m. No dividends were declared, as expected.

YoY, 9MFY20 revenue declined by 7% to RM743.5m, mainly from the impact of the MCO spiking down overall advertising spend via traditional platforms. Notably, gains are seen from the Digital Media (+46%) and Home Shopping segment (36%) as these channels benefitted from the increase in digital dependency and the acceleration in acceptance of e-commerce during this period of restricted movements. On the flipside, thanks to past streamlining efforts coming to fruition in the broadcasting and publishing segments, the group was able to register a higher core EBITDA of RM81.6m (+113%). Though the group is still pained by heavy depreciations, its 9MFY20 LATAMI of

RM25.9m is an improvement from 9MFY19 LATAMI of RM75.6m.

QoQ, 3QFY20 revenue rose by 14% as advertising activities in traditional media outlets regained strength from the loosening of movement controls and re-opening of economic activities. That said, Home Shopping saw lower sales which we believe is likely due to consumers returning to brick-and- mortar shopping. Thanks to the abovementioned better cost environment, losses of RM8.8m in 2QFY20 turned around to a PATAMI of RM12.4m in 3QFY20.

Grass will grow. The difficult decision made in the past has started to pay off as its operations have become leaner. While the resurgence in traditional adspend is welcomed, it could be a case of advertisers catching up on opportunities lost in the previous period. That said, we continue to be optimistic on the outlook of the group’s Home Shopping segment, where it recently acquired the remaining 49% stake in CJ Wowshop. Digitalisation remains to be a growing trend and a threat to the group, especially as movement controls and homebound arrangements become a norm, inhibiting the effectiveness of outdoor advertising.

Post-results, we raise our FY20E/FY21E earnings by 77%/148% on the back of more relaxed cost assumptions for the broadcasting and publishing segments.

Maintain UNDERPERFORM but with a higher TP of RM0.155 (from RM0.105, previously). Our TP is based an unchanged 0.7x FY21E P/NTA (-1.5SD below the group’s 3-year mean) on the higher NTA following our earnings revision. Though we believe that it is possible for the group to report positive numbers in the coming quarters, we are still cautious of the erosion on traditional media outlets in the advertising industry. Additionally, we believe the group might continue to withhold its dividend payouts until it becomes more cash- stable. Consolidation with smaller media players could be a plus.

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

Source: Kenanga Research - 19 Nov 2020