FY21 core LATAMI of RM7.9m came above our/consensus expectation. After adjusting for one-off reversal of compensation income and impairment of asset, the group saw an 87% improvement in core LATAMI. Taking into consideration our in- house expectations of 5.5%-6.0% FY22E economic recovery along with the group’s effort to continue improving its operational efficiencies, we raise FY22E earnings by 95% and upgrade our call to MARKET PERFORM with a higher TP of RM0.330 as we roll over our valuation base to FY23E.

FY21 above expectations. The group registered a LATAMI of RM7.9m which came above our/consensus LATAMI expectation of RM28.3m (28%)/RM26.8m (29%). We believe this positive deviation may be due to the over-estimation of the group’s operating expense. No dividend was declared as expected.

YoY, FY21 revenue declined by 5% to RM187.1m from RM196.4m in FY20 due to higher revenue recorded in 1QFY20 pre pandemic and lockdowns. Despite a 23% growth in digital revenue, the print and digital segment dropped by 8% to RM158.7m indicating print still holds a large share of the segment and has dragged down the performance of the segment. However, after excluding the one-off items for impairment of asset and reversal of compensation income, of RM71.6m and RM52.5m, respectively, the segment’s LBT declined by 51% to RM27.1m thanks to savings in operating expenses from the cost management initiatives in 2QFY20 and better cost management. Moreover, in line with higher revenue (+27% YoY), the radio segment recorded a PBT of RM1.2m (+136). Adjusting for the abovementioned one-off items, the group recorded a decline of 87% in core LATAMI to RM7.9m from a core LATAMI of RM58.3m in FY20.

QoQ, revenue rose by 11% to RM51.5m thanks to a 22% rise in radio advertising and a >+100% jump in event and exhibitions. Improvement in the event and exhibitions may be due to the re-opening of the economy in 4QCY21, thus, less stringent SOPs in place. All in, after adjusting the one-off items, core PATAMI soared by 467% to RM14.9m from a core LATAMI of RM4.1m. With that, core PATAMI margin improved by 38ppt to 29% in 4QFY21.

Strengthening digital initiatives. As the group is focused on expanding its digital transformation initiatives and strategies, they have launched several initiatives in 2021. For instance, the group launched a Malay news portal called Majoriti which concentrates on news and contents written in Bahasa Malaysia. The aim is to get into corporate collaborations to tap on their customer databases to gather more traffic to the portal. The group understands the need to invest in the digital space in order to improve its operational efficiencies and keep pace with continuous change in market needs and therefore plans on introducing more fresh products and restructuring existing ones. For now, we believe media outlets could progressively gain traction once more when economic activity picks up, which we reckon would materialise in FY22. Nonetheless, the digital initiatives have yet to offset the losses incurred in the print and digital segment which is currently being dragged down due to the weakness in the print segment.

Post results, we raise FY22E earnings by 95% on the back of our in- house expectations of a 5.5%-6.0% economic recovery and introduce our FY23E earnings.

Upgrade to MARKET PERFORM (from UNDERPERFORM) with a higher TP of RM0.330 (previously RM0.285) as we roll over our valuation base to FY23E based on P/NTA of 0.4x (0.5SD below its 3- year mean level).

Key risks to our call include: (i) higher/lower-than-expected adex revenue, and (ii) better/lower-than-expected margins following various cost initiative plans.

Source: Kenanga Research - 1 Mar 2022