INVESTMENT HIGHLIGHTS

• 9MFY17 financial performance severely below expectation as traditional media business remains under threat

• To-date, no dividend has been declared

• We are now expecting FY17 and FY18 to be loss-making

• Downgrade to SELL with a lower target price of RM0.52

3Q17 results impacted by termination benefits. Media Prima Bhd (MPB) reported 3Q17 loss of –RM101.1m. After adjusting for exceptional items amounting to RM50.8m, 3QFY17 normalised loss amounted to -RM50.3m (3Q16: -RM6.2m). The bulk of the exceptional items pertained to early retirement scheme (ERS) payment of RM52.3m. Note that the quarterly performance was negatively impacted by the declining trend of core advertising revenue.

Traditional media business remains under threat. Cumulatively, 9MFY17 normalised loss amounted to –RM76.7m as compared to 9MFY17 normalised earnings of RM38.4m. The shift to digital media continues to significantly affect the group’s traditional media business. In addition, we view that the existing cost structure could no longer match the revenue generated from the various business segments. All in, MPB’s 9MFY17 financial results came in severely below ours and consensus earnings estimates.

Impact. We are now expecting MPB to report losses for FY17 and FY18 of –RM117.5m and -RM63.6m respectively due to the challenging business landscape and unsustainable cost structures. As such, we are also assuming that the group will not be paying any dividend for both financial years.

Target price. We are lowering our target price to RM0.52 (previously RM0.77). This is based on pegging revised FY18 forecasted book value of RM0.69 (previously RM1.10) against forward PBR of 0.75x which is the three year historical rolling average. To recall, due to the volatility and unpredictability of the group earnings in the near term, we have shifted our valuation methodology to price-to-book ratio (PBR) from price-to-earnings (PER) ratio previously.

Downgrade to SELL. MPB’s traditional core businesses continue to impact the group’s overall financial performance which has severely impact its retained earnings position. This has led the company to rethink about its business models in entirety via the execution of its “odyssey strategy”. The group is now aiming to grow its revenue in nonadvertising, non-TV/print, international and digital segments. While we applause the group’s effort to reform, we do not expect any significant turnaround in the near-term. Moreover, we anticipate Media Prima to be loss-making in FY17 and FY18. Due to the adverse business conditions and depleting cash reserve, we do not think that the group will pay any dividend in the near term. All factors considered, we are downgrading our recommendation to SELL from neutral previously. We would advice investors to look away from MPB and shift focus to media companies which has a more sustainable business model and healthier balance sheet.

Source: MIDF Research - 30 Nov 2017