INVESTMENT HIGHLIGHTS

• 4Q17 normalised loss further impact full year FY17 financial performance

• Television network and print media segments normalised loss worsened in FY17

• As expected no dividend is declared for FY17

• No reprieve foreseen for FY18 as the group is still in gestation period

• Maintain SELL with unchanged target price of RM0.52

Loss widened in 4Q17. Media Prima Bhd (MPB) reported 4Q17 loss of –RM378.2m. After adjusting for exceptional items amounting to RM301.8m, 4QFY17 normalised loss amounted to –RM76.4m (4Q16: - RM1.8m). The bulk of the exceptional items pertained to impairment of property, plant and equipment (RM119.9m) and impairment of intangible assets in relations to publishing rights (RM100.5m). Note that the quarterly performance was negatively impacted by the declining trend of traditional advertising revenue and write down of deferred tax assets.

Traditional businesses remain under threat. Cumulatively, full year FY17 normalised loss amounted to –RM157.4m as compared to FY16 normalised earnings of RM37.2m. 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. Due to the loss making position, the group did not declare any dividend for FY17. All in, MPB’s FY17 financial results came in severely below ours and consensus earnings estimates.

Impact. No change to our FY18 earnings estimates at this juncture. We view that MPB will continue to record losses in FY18.

Target price. We are maintaining our target price of RM0.52. This is based on pegging revised FY18 forecasted book value of RM0.69 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.

Maintain 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 non-advertising, 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. We anticipate Media Prima to be loss-making in near term. In addition, 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 maintaining our SELL recommendation on the stock. 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 - 23 Feb 2018