MEDIA’s 15MFY23 results (FY23 comprises an 18-month period ending Jun 2023) missed expectations. While partially offset by disposal gains, the group was hit by the weaker advertisement spending during 1QCY23, resulting in weaker earnings contributions across key segments. We cut our FY23-24F earnings forecasts by 24% and 26%, respectively, lower our TP by 26% to RM0.42 (from RM0.57) and downgrade our call to MARKET PERFORM from OUTPERFORM.

Below expectations. MEDIA’s 15MFY23 net profit missed expectations, only accounting for 71% and 81% of our full-period forecast and the full period consensus estimate, respectively. The negative variance against our forecasts came largely from lower-than-expected adex during 5QFY23, resulting in margin compression and a significant contraction in earnings.

YoY, revenue fell 11.6% compared to the same 15M period last year, stemming from combination of weaker adex in its core segments coupled with the continued contraction of the home shopping business. On a segmental basis, broadcasting earnings fell 35% YoY which we believe is mainly due to lower adex contributions as well as the strong base of FY21, during which the segment enjoyed elevated adex as viewers remained quarantined in their homes. Similarly, home shopping losses widened further to RM25.5m as the segment continued to reel from the return of the brick and mortar shopping experience. On the brighter side, the group’s out-of-home advertising segment remained profitable during 5QFY23 as the increased pedestrian footfall benefited the segment. Digital media also continued to grow resiliently with earnings expanding 44% YoY. The publishing segment surprised on the upside, reporting a more than 10x growth in earnings YoY. However, the growth stemmed mainly from a pre tax disposal gain of RM13.4m. Excluding the disposal gain, the segment’s earnings contribution remained relatively minor as the print medium continued to face intense competition from digital media.

Overall, net profit fell 9% as the contractions in the group’s largest segments offset the increased earnings from digital and out-of-home.

QoQ, revenue fell 16.6%, largely due to seasonality as 4Q is normally the strongest in terms of adex. The group saw similar contractions across its core media channels, with broadcasting (-16% QoQ), publishing (-18% QoQ) and digital media (-28% QoQ) all reporting lower revenue. Overall, net profit fell 83% as the group struggled to cover its fixed costs with the drop in top line. The drop was also partially due to unusually high tax during 5QFY23, stemming from loss-making subsidiaries as well as property gains tax on the disposal mentioned above.

Looking forward. The outlook for the group remains a mixed bag. The group continues to face significant headwinds with both consumers and advertisers dampened by the uncertain economic outlook. While the group’s cost consolidation efforts have been effective in returning it to the black, performance during times of softer adex had not been entirely encouraging. As CY23 is expected to be a cyclical lull in adex, the group could see pressure on its margins going forward. Coupled with the fact that the group has yet to completely address the loss-making home shopping segment, the immediate outlook for the group still looks to be cloudy.

Forecasts. We cut our FY23-24F earnings forecasts by 24% and 26%, respectively, as we impute crimped margins stemming from lower adex.

We lower our TP by 26% to RM0.42 from RM0.57 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. Downgrade to MARKET PERFORM from 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 May 2023