QFY21 registered a core PATAMI of RM5.2m which rose by 118% YoY thanks to the group’s better control on operating expenses and a 7% increase in revenue despite the re- implementation of MCO. However, this is still below expectations as more bullish advertising revenue was expected. That said, we believe the group’s recent partnerships and stable home-shopping segment would be catalysts to earnings moving forward. As expected, no dividends were declared. Downgrade to MP with a lower TP of RM0.690.

1QFY21 below expectations but remains in black.1QFY21 recorded a core PATAMI of RM5.2m which came below expectation of our/consensus’s full-year PATAMI estimate of RM58m/RM27m. We believe the negative deviation is due to an overestimation of advertising sales. However, it is noted that the group remained profitable in three consecutive quarters despite the re-implementation of MCO in 1QFY21. As expected, no dividends were declared.

YoY, revenue rose by 7% to RM254.5m which was mainly lifted by a 16% increase in the broadcasting segment, +11% in digital media and +19% home-shopping segments. Broadcasting was up due to stronger television ad revenue as the segment benefited from the larger home- bound consumer base thanks to the re-implementation of MCO. With online shopping gaining traction especially during this pandemic, the home-shopping segment sales rose YoY which boosted the group’s revenue further. Despite publishing’s revenue falling by 30%, its PAT margin rose from -26% in 1QFY20 to -1% in 1QFY21 which implies that the cost rationalisation exercise in FY20 has effectively lowered operating expenses for this segment. The group’s out-of-home revenue fell by 35% which resulted in PAT dropping by 221% as this segment has a significant amount of fixed cost in the form of rental payments. All in, the group registered a core PATAMI of RM5.2m which is up by 118% from a core LATAMI of RM30m.

QoQ, revenue fell by 15% due to lower advertising revenue; omnia dropped by 25% as the re-imposition of MCO affected the revenue. The decline in revenue resulted in EBITDA margin falling to 14% from 16% in 4QFY20. The home-shopping segment remained stable by falling by a mere 2%. As a result, core PATAMI plunged by 75% from RM21.2m in the previous quarter.

Outlook. The group is continuously collaborating with various parties to grow their revenue in both traditional platforms (e.g. rebranding of NTV7 to DidikTV which airs educational materials) and non-traditional platforms (e.g. recent content partnership with iQiyi and WeTV). As the recent partnerships with iQiYi and Ministry of Education will start contributing in full quarterly beginning 2QFY21 along with a bump in adex by advertisers due to 2QFY21 being a festive season, we believe the content creation segment and ad revenue will improve moving forward. In addition, as consumers have shifted their preference to digital platforms, we believe the home-shopping segment will continue to remain stable.

Post-results, we cut earnings by -30%/-17% for FY21E/FY22E, respectively, to account for the drop in earnings.

Downgrade to MARKET PERFORM (from OUTPERFORM) with a lower TP of RM0.690 (previously RM0.755). Our TP is based on an unchanged 2.4X FY22E P/NTA (+1SD above the group’s 3-year mean). We attribute the above-mean valuation to the group staying profitable going forward due to the bright outlook on its ad sales, content distribution and home-shopping segment as well as successful cost optimisation (EBITDA margin in 1QFY20: 0.6% vs, 1QFY21: 14%) executed in FY20.

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

Source: Kenanga Research - 28 May 2021