INVESTMENT HIGHLIGHTS

• 1HFY19 normalised losses deepened by -27.4%yoy to – RM50.8m, in line with our expectation

• This was primarily due to the continued subdued advertising expenditure

• Both traditional and digital segments continue to experience contraction in revenue

• Maintain SELL with an unchanged target price of RM0.32

Financial performance in the red. Media Prima Bhd’s (MPB) 1HFY19 normalised losses came in higher by -27.4%yoy to –RM50.8m, which is within our expectation. This was mainly attributable to the declining advertising expenditure (adex) from its traditional segment (-19.0%yoy) and the steep losses in 1Q19 amounting to –RM37.2m. Note that its 1HFY19 digital segment also suffered a -2.0%yoy contraction in digital adex as well. Sequentially, normalised losses of the group in 2Q19 lessened to -RM10.8m, representing an improvement of +71.0%qoq due to festive season during the period.

Publishing segment dipped the most. The group’s 1HFY19 revenue dropped by -13.3%yoy to RM296.8m, mainly as a result of the poor topline from its traditional segment (-22.0%yoy). The total net revenue from its traditional advertising and circulation activities deteriorated by - 19.0%yoy and -23.0%yoy to RM337.5m and RM31.7m respectively. Consequently, this led to the traditional media platforms’ earnings continue to be in negative territory (refer to Table 1). Notably, the performance for its publishing arm weakened the most as contribution from newspaper advertising and circulation posted lower revenue by -27.0%yoy and -30.0%yoy respectively.

Digital and Home Shopping segments. The digital segment’s 1HFY19 revenue of the group did not go unscathed as well, recording a dip by -3.0%yoy to RM43.3m. It was primarily due to the marginal fall in adex net revenue by -2.0%yoy to RM41.3m. Meanwhile, the home shopping segment (i.e. CJ WOW Shop) remains upbeat, increasing its revenue by +19.0%yoy to RM114.2m. Nonetheless, both segments continue to record lower 1H19 earnings (refer to Table 1).

Earnings estimates. We are maintaining our earnings forecasts.

Target price. We are maintaining our target price of RM0.32 based on price-to-book valuation methodology. Note that we have attached a target price-to-book ratio of 0.7x which is the group’s two-year historical average.

Maintain SELL. The company’s business conditions continue to be beleaguered by weakening advertising expenditure environment and lower sales of newspaper. This is reflected through its widened 1HFY19 normliased losses, mainly from the lacklustre traditional segment. Due to the structural changes in the media sector, the larger chunks of its traditional businesses are paying the price, thus leading to a prolonged loss-making position while pursuing its digital transformation initiatives which are still in its gestation period. We are of the view that cost-cutting measures seem to be out of the wildcard and hit its plateau. Going forward, we also opine that enhancing its revenue-generating abilities through its vast digital assets should be the key focus. We also do not think that the group will declare any dividend in the foreseeable term. Given the lack of positive re-rating catalysts in the near term, we are maintaining our SELL recommendation for MPB.

Source: MIDF Research - 23 Aug 2019