MEDIA is partnering with local production houses to expand Tonton’s catalog. Meanwhile, progress to upgrade and digitalize Big Tree’s OOH advertising sites are ongoing. Moving forward, we believe adex may soften as major advertisers are affected by recent mass brand boycotts. Lastly, future cost cutting measures are expected to yield limited savings as MEDIA’s staff force has reached optimal state. We maintain our forecasts, TP of RM0.32 and UNDERPERFORM call.

3-year Biz Plan on track. According to MEDIA, progress on its 3-year Business Plan (launched: Feb 2023) is well on track. To recap, the plan consists of three strategic pillars: (i) content boost, (ii) inventories premiumization, and (iii) new revenue streams. To achieve content boost, MEDIA is establishing partnerships with local production houses, whose programs will be added to Tonton’s catalog. In addition, MEDIA will provide marketing services for their new content across its broad range of platforms (ie. TV, radio, newspapers, OOH, digital). Moving forward, as Tonton’s content library expands, MEDIA plans to re-launch this video streaming service on a large scale. Since its soft launch in 2011, Tonton has amassed c. 8m registered users and counting.

Digitalizing OOH’s sites. Meanwhile, MEDIA continues to focus on premiumization of Big Tree’s inventory by upgrading its existing out-of- home (OOH) advertising sites. Depending on market demand and approval of various permits, Big Tree will launch new sites and upgrade existing ones from static to digital. As at March 2024, its electronic sites consist of 33 digital locations and 105 digital screen panels. On the back of this, MEDIA expects to strengthen its leading market share, which is estimated at 40%-45% currently. In the OOH space, its largest competitor, Seni Jaya, trails at an estimated 12% market share.

Diversifying topline to cushion earnings. In terms of new revenue streams, MEDIA is monitoring its progress in various ventures, such as: (i) sale of original intellectual property (IP) household products (eg. Le Nona bedsheets, tableware) on WOWSHOP, (ii) printing services for other publications, (iii) data-driven digital marketing solutions via REV, and (iv) Omnia’s customer diversification into the Small Medium Enterprises (SME) segment.

Brands boycott may drag adex. As MEDIA’s business plans above unfold, we believe it may cushion earnings headwinds from a competitive adex market. Moreover, in the upcoming quarters, there are expectations of softer adex as advertisers are affected by recent mass boycotts of their brands. To recap, large companies in Malaysia (eg. McDonalds, KFC, Pizza Hut, Starbucks, PepsiCo, Nestle, Levi Strauss & Co,) were shunned due to their alleged support of Israel in the ongoing Gaza conflict. Consequently, we believe these major advertisers have reduced their marketing budgets to cope with revenue erosion and weak sentiment.

Cost optimization completed. Regarding cost management, MEDIA believes its cost base has reached an optimal and efficient state. This is after completion of group-wide streamlining and manpower right-sizing exercises since 2020. Therefore, its current (as at June 2023) staff of 2,410 employees reflect a leaner work force that multi-tasks across various roles. Hence, we believe that future cost cutting measures will yield limited savings, given that manpower expenses comprises the group’s largest cost component,

Forecasts. Maintained.

Valuations. We also maintain our TP of RM0.32 based on unchanged 10x FY25F PER. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We remain cautious on MEDIA due to: (i) intense competition for viewership and adex share with digital media, (ii) escalated fixed costs base amidst topline pressure, and (iii) continued drag from the home shopping segment. Maintain UNDERPERFORM.

Key risks to our call include: (i) recovery in adex for traditional media, (ii) value accretive M&A, and (iii) successful diversification from its legacy business.

Source: Kenanga Research - 8 Aug 2024