• 3Q16 reported loss impacted mainly by impairment of fixed assets

• 9M16 normalised earnings came in severely below ours and consensus expectations

• Appalling performance from print media and television network segments

• Downgrade to SELL with a lower target price of RM0.78 per share

Disappointing quarter. Media Prima Berhad (MPB) reported 3Q16 loss of -RM109.4m. After adjusting for exceptional items amounting to +RM104.7m, MPB’s normalised loss came in at -RM4.7m. Bulk of the exceptional items pertained to impairment of two printing plant in Terengganu and Johor (RM76.1m) and provision for termination benefits (RM20.0m).

9M16 financial performance below expectations. The weaker 3Q16 financial performance impacted MPB’s cumulative 9M16 normalised earnings lower by -63.4%yoy to RM39.9m. The decrease in earnings was mainly attributable to poor performance from the print media and television network (TVN) segments. This came in severely below ours and consensus’ estimates, accounting for 41.9% and 40.2% of full year FY16 earnings forecasts respectively.

Impact on earnings. We cut our estimates of earnings contribution from the print and TVN segments to better reflect the results thus far. Consequently, we slashed our earnings forecasts for both FY16 and FY17 by -45.8% and -42.9% respectively.

Target price. Following our earnings revision, we derive a revised target price of RM0.78 (previously RM1.17 per share). Our target price assumption is based on FY17EPS of 5.3sen against its 5-year historical average PER of 14.7x.

Downgrade to SELL. In the immediate term, we do not see any earnings recovery from both the print and TVN segments. Meanwhile, the home shopping business is still in gestation period. It is targeted to breakeven towards the end of FY17. Earnings from this segment could be seen earliest by FY18. Only the outdoor media and radio networks segments are expected to performed better. However, the two segments only constitute a small part of the group’s aggregate earnings. Given the lack of catalyst, we downgrade the stock to SELL from NEUTRAL previously.

Source: MIDF Research - 30 Nov 2016