MEDIA’s 12MFY23 results (FY23 comprises an 18-month period ending Jun 2023) beat expectations following a major turnaround in its out-of-home advertising division, while other key segments quarterly performance contracted YoY, partially due to the significantly stronger comparative base in 4QFY21. We raise our FY23-24F earnings forecasts by 17-11% (to account for better margins), lift our TP by 11% to RM0.57 (from RM0.51) and maintain our OUTPERFORM call.

Above expectations. MEDIA’s 12MFY23 net profit beat expectations, accounting for 78% of our 18-month forecast and 86% of consensus 18- month estimate. The variance against our forecast came largely from a major turnaround in the out-of-home segment as well as income from Covid-19 related rental concessions.

YoY, revenue fell 10.9% as the group’s home shopping segment continued to contract. Omnia revenue grew 7.6% YoY. However, excluding out-of home revenue which was only accounted for after 3QFY21, advertising revenue remained relatively flat YoY. This was partially due to the significantly stronger base in 4QFY21 during which the industry saw record high adex numbers as optimism peaked with loosening restrictions. On a segmental basis, net profit contribution from broadcasting (-15.4%) and publishing (-10.1%) both contracted YoY, mainly due to the rebound during 4QFY21 creating a high base. Otherwise, digital media continued growing resiliently, with profit growing 46.1% while home-shopping stayed in the red for another quarter as losses widened to RM20.1m during FY23. However, the out-of-home advertising segment surprised on the upside, posting profit of RM7.2m compared to losses of RM36.2m. The segment saw a major turnaround in 4QFY23, partially due to Covid-19 related relief from some partners.

Overall, net profit grew 4.4% as the rebound in the out-of-home segment offset contractions in other segments and it also benefitted from rental concessions in 4QFY23.

QoQ, revenue grew 6.5% following a seasonal uptick in advertising revenue. Omnia, the group’s leading indicator of advertising revenue, grew 16.1%. Overall, the group saw improvements across its core media channels, with digital (+36.1% QoQ) and out-of-home (+13.1% QoQ) being the biggest winners. Overall, net profit more than tripled on better margins following cost consolidation efforts as well as due to the rental concessions.

We also attended MEDIA’s analyst briefing. Key takeaways are as follows:

1. Advertisers are seen hesitant ahead of uncertainty in the political space. Advertisers had previously been reluctant to advertise during election season when news flow was dominated by political news. This has extended into 2023 and the group expects some hesitancy from advertisers until the dust settled.

2. The group is focusing on upgrading its out-of-home billboards by converting those located in prime locations to digital ones which fetch better margins.

3. It has begun transitioning its home-shopping network, Wowshop, to an all-in-one marketing and commerce platform. The group plans to offer marketing and branding solutions to SMEs in addition to a storefront, leveraging existing marketing expertise and first-party data to provide advertising solutions to clients lacking their own established brand or marketplace via its TV shopping network.

4. The group also foresees a catalyst in Google Chrome’s phasing out cookies in 2024. It expects that the change will be beneficial to first-party data collectors as it removes third-party data brokers from the equation, allowing the group to offer its collected demographic data directly to advertisers instead of going through a middle market.

5. It is also renewing focus on its Tonton streaming service, but the timeline is expected to be longer as the group balances the rollout of the platform with content sales to other streaming services. The group guided that while results from the soft launch are encouraging, the group is gradually rolling out the program while monitoring performance to avoid over-investment in the platform.

Forecasts. We increase our FY23-24F earnings by 17-11%, largely to reflect better margins in out of the out-of-home segment as well as the one-off rental concessions.

Maintain OUTPERFORM. We raise our TP to RM0.57 from RM0.51 previously, based on an unchanged 10x FY24F PER (at a discount to the average historical forward PER of 11x for traditional media to reflect the rise of digital media). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We continue to like MEDIA for its: (i) integrated approach to advertising which we believe offers better demographic targeting and scalability, (ii) strong cost optimisation following the consolidation of its advertising divisions into Omnia, and (iii) leading position in the FTA TV space in which it commands the largest market share. However, we remain wary as the group continues to struggle to address its loss-making segments.

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 - 23 Feb 2023