Kenanga Research & Investment

Media Prima - Subdued Adex and Margin Pressure

Publish date: Thu, 30 Nov 2023, 10:39 AM

MEDIA’s 1QFY24 results missed expectations on sluggish adex, slow sales of home shopping goods, and cost pressures. We believe earnings will be weighed down by weak adex trends and market share erosion in the near-to-medium term. Hence, we cut our FY24F earnings by 31%, lower our TP by 12% to RM0.37 (from RM0.42) and downgrade our call to UNDERPERFORM (from MARKET PERFORM).

Underwhelmed expectations. MEDIA’s 1QFY24 core net profit of RM1.5m missed expectations, merely making up 3% and 4% of our fullyear forecast and the full-year consensus estimate, respectively. The variance against our forecast largely emanated from lower-than-expected adex. Core profit excluded chunky exceptional items such as: (i) insurance claims (RM2.2m), and (ii) disposal gain on investment properties (RM3.7m).

QoQ earnings caved in due to cost pressure. The sequential 4% contraction in topline mainly emanated from segmental weakness at: (i) broadcasting: due to lower non-advertising revenue (which we believe was largely related to content sales), and (ii) home shopping: due to lower product sales. However, bottomline declined at a larger magnitude (-92% QoQ) as EBITDA margin more than halved to 11% (6QFY23: 22%) on the back of cost pressure.

The QoQ dip in earnings was a disappointment given that adex was flattish in 1QFY24. Moreover, data by Nielson had revealed an 8% uptick in adex at MEDIA’s TV channels. This was largely underpinned by the surge in advertising from various ministries and governmental bodies during the state elections held in 12 Aug.

YoY, costs have eased off. Topline declined by 10% YoY due to lower contribution from the broadcasting and home-shopping segments as outlined above. The combination of lower topline and margin weakness more than offset lower finance costs, taxes and depreciation.

Soft adex amidst shrinking market share. The soft adex outlook, particularly in traditional media (i.e. TV, radio and newspapers), will continue to weigh on MEDIA’s earnings. This is underpinned by weak consumer and business sentiment amidst inflationary headwinds. Furthermore, social media, mobile apps and international websites (e.g. Youtube) are nipping at MEDIA’s share of adex. This is because the barriers of entry for content developers on the latter’s platforms are relatively low. Therefore, this implies sustained market share erosion for MEDIA given that its high fixed cost base limits its ability to be nimble in responding to market trends.

Forecasts. We slash our FY24F earnings by 31% to reflect lower adex assumptions, whilst introducing FY25F numbers.

We lower our TP by 12% to RM0.37 (from RM0.42) as we roll forward our valuation base year to FY25F (from FY24F). Our valuation is unchanged at 10x PER, which implies a discount to the average historical forward PER of traditional media players (11x). This reflects sustained market share erosion for MEDIA due to the ascent of new digital media.There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Downgrade to MARKET PERFORM from OUTPERFORM.

Key risks to our call include: (i) (i) recovery in adex for traditional media, (ii) effective cost optimization initiatives drive fixed costs lower, and (iii) value accretive M&A or successful inroadsinto new digital media to diversify from its legacy business.

Source: Kenanga Research - 30 Nov 2023

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