Swings into the red

No signs of turnaround amid weak consumer sentiment. We downgrade our recommendation on Media Prima (MPR) to Fully Valued with a lower TP of RM0.95. Earnings outlook is uninspiring in the near term as adex spending has remained weak due to the poor consumer sentiment and uncertain economic outlook. We believe this will continue to weigh on the company's share price performance until there is a turnaround in consumer sentiment.

Restructuring to help save costs. With significant drops in its newspaper circulation and advertising sales, MPR has recently initiated a restructuring exercise for its regional printing plant operations. This involves closing down some of its printing plant capacity in order to save costs, and this is also in line with MPR?s expansion into digital and new business initiatives. As at September 2016, the company recorded RM104.6m in restructuring expenses comprising mainly of property, plant and equipment impairment, provision for termination benefits, and closure costs.

Valuation

Our TP of RM0.95 is pegged to 11x FY17 PE, which is -1SD of its 5-year historical mean. With 21% implied downside to share price, we downgrade our call to FULLY VALUED.

Key Risks to Our View

Migration to digital TV platform. Malaysia is slated to switch to digital TV broadcasting by 2018. This could be an opportunity for MPR to expand its channels as well as upgrade its existing channels to HD format. On the flipside, there could be threats from potential new entrants and earnings risks if the transmission cost is high.

Source: Alliance Research - 30 Nov 2016