After a meeting with MEDIA’s investor relations, we feel positive on the group’s outlook. Key highlights include: (i) recent partnerships with WeTV and iQiYi will positively impact digital ad sales and content distribution, (ii) rebranding of ntv7 to Didik TV may spur higher viewership, and (iii) the performance of its home-shopping segment has been stable thus far. Hence, we upgrade our call to OUTPERFORM (from UNDERPERFORM) with a higher TP of RM0.755 (from RM0.365).

Optimistic on... MEDIA recently teamed up with leading OTTs, WeTV (26 November 2020) and iQiYi (23 March 2021), to offer local content to viewers across Asia which is in line with their digital expansion strategy. Both partnerships entail the group (i) to license out their programmes to the OTTs enabling them to stream these contents on their respective platforms, and (ii) allow the group to sell advertising slots in the digital space solely on their licensed contents. With that said, this opens up another avenue for the group to sell ad slots as more titles licensed out to these OTTs result in more ad slots available for the group to sell.

…advertising... By rebranding ntv7 to an educational channel, Didik TV, which is a collaboration with the Ministry of Education (MoE), we believe MEDIA’s lowest viewing channel may gain traction, thus, bumping up its viewership. With higher viewership, the said channel will be able to secure more ad sales thus increasing ad revenue for the group. In addition, the revenue gained via the production fees charged to the MoE will be parked under Omnia and as the collaboration began in February 2021 this will further bump up Omnia’s revenue from 1QFY21 onwards.

…sales. Based on Nielson’s 4QCY20 adex data, we see adex gradually recovering with FTA TV being the only traditional adex platform seeing an uptick of 1.35% YoY whereas other traditional platforms plunged YoY (e.g. newspapers (-42%), radio (-26%)). This implies FTA TV is the most resilient among them and with work-from- home arrangements giving other traditional platforms a run for their money this could potentially benefit the FTA TV and digital segments the most. The group also command a lion’s share of FTA TV adex at 77%; thus, we believe MEDIA will benefit the most from adex recovery moving forward.

Higher content distribution. As aforementioned, the group will be distributing their content to WeTV and iQiYi and as for the latter, 1,000 hours of premium content is expected to be licensed out by the end of 2021. We believe the growth in content distribution may give an edge to its loss-making content creation segment to hit break-even as 80% of the segment’s revenue comes from content distribution.

Stable home-shopping performance. From our meeting with the group’s investor relations, we learnt that the performance of WOWSHOP is flat from 4QFY20 to 1QFY21 despite 1Q being the group’s seasonally weakest quarter. With that said along with their e- commerce and mobile commerce (ECMC) multi-platform strategy showing positive results (2016: sales contribution came solely from TV vs. 4QFY20: 46% from TV and 54% from ECMC), we expect WOWSHOP to remain sustainable post pandemic as consumers are adapting and becoming more dependent on digital shopping.

Post meeting, we raise our FY21E/FY22E by 9% and 10%, respectively, after factoring our assumptions of: (i) higher ad sales, (ii) better content distribution, and (iii) stable performance of WOWSHOP.

Upgrade to OUTPERFORM (from UNDERPERFORM) with a higher TP of RM0.755 (from RM0.365). Our valuation is based on higher earnings estimate on a higher FY22E P/NTA of 2.4x (from 1.2x, 1SD above its 3-year mean). We believe the rich valuation is attributed to the group remaining profitable going forward due to the bright outlook on its ad sales, content distribution and home-shopping as well as successful cost optimization (EBITDA margin in FY19: -4% vs. FY20: 11%) executed in FY20.

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 - 16 Apr 2021