MEDIA’s 1HFY22 results missed expectations as its home shopping segment disappointed. On a brighter note, its TV, radio and digital media segments reported improved performance partly also driven by cost-cutting initiatives. We cut our FY22F and FY23F net profit forecasts by 12% and 20%, respectively, and lower our TP by 14% to RM0.64 (from RM0.74) as we change our valuation basis to PER from PBV. Maintain OUTPERFORM.

Fell short of expectations. MEDIA’s 1HFY22 PATAMI came in below expectations at only 30% of our, and 34% of consensus, full-year estimate. The variance against our forecast came largely from weak performance in its home shopping segment.

Results’ highlights. Revenue fell 7% as growth was offset by contractions in some segments. Omnia revenue grew 26%, although earnings for the segment remain low due to tight margins. TV and radio broadcasting accounted for the majority of the earnings, growing 77% YoY. The segment saw strong growth in margins as continued cost consolidation cut down operating costs. Digital media earnings grew 54% YoY as advertisers continue to shift towards the medium. However, a majority of the growth was offset by contraction in the home shopping segment, which fell into losses as revenue fell 44%. Newspaper printing and publishing earnings also fell as newspaper circulation decreased YoY. Also, despite an increase in revenue of 13%, their out-of-home segment reported a larger loss in 1HFY22 as growth failed to cover rental costs.

Overall, PATAMI grew 17.1% as the group continued to improve margins via cost management. However, the group continued to struggle with some of its loss-making segments which ate into the bottom line.

Outlook. 2HFY22 outlook remains a mixed bag. The group has continued to improve its cost management over its broadcasting segment, especially since consolidating its advertising division into Omnia. Its digital segment also continues to show growth prospects, especially the sale of vernacular content to over-the-top (OTT) streaming services which top-line has grown 39% YoY. However, earnings contributions from their digital segment remain relatively small and their newspaper and out-of-home advertising divisions have yet to show meaningful recovery.

Furthermore, performance of their home shopping segment post pandemic is not encouraging. While it saw massive growth during the lockdown period, the return of the brick-and-mortar shopping experience seems to have driven customers from the platform. The segment has fallen into losses and outlook remains muted given that inflationary pressure is also eating into consumer spending power.

We continue to like the group for its integrated approach to advertising which we believe offers better demographic targeting and scalability. However, we foresee challenges in the transition to digital media as well as consolidation of some of the weaker segments. We cut our FY22F and FY23F net profit forecasts by 12% and 20%, respectively, and lower our TP by 14% to RM0.64 (from RM0.74) as we change our valuation basis to 10x FY23F PER (at a discount to the average historical forward PER of 11x for traditional media to reflect the rise of digital media) from 2.1x FY22F PBV previously. There is no adjustment to TP based on its 3-star ESG rating as appraised by us (see page 3). Maintain OUTPERFORM.

Key risks to our call include: (i) accelerated demise of the traditional media, (ii) high newsprint cost, (iii) unfavourable forex movements, (iv) non-renewal of operating licenses, and (v) slow pace of digitalisation.

Source: Kenanga Research - 25 Aug 2022