KEY INVESTMENT HIGHLIGHTS

• 9MFY19 normalised losses deepened to –RM72.3m, which fall short of our and consensus expectations

• Vast and valuable digital assets on the fence to be monetised further to grow its “new revenue” share

• Recovery in 3QFY19 EBITDA indicates on-going rigorous cost cutting initiative

• Current valuation indicates a discount to its historical average of price-book value

• Upgrade to NEUTRAL with a revised target price of RM0.30

Earnings remains in red. Media Prima Bhd’s (MPB) 9MFY19 normalised losses came in higher by -251.1%yoy to –RM72.3m. This is below our and consensus expectations, accounting for 85% and 82% of full year estimates respectively. This was mainly attributable to the continued decline in advertising expenditure (adex) from its traditional segment (- 17.0%yoy) namely TV, Publishing and Radio. However, on a quarterly basis, normalised losses of the group in 3Q19 also lessened to –RM25.5m, representing an improvement of +17.0%yoy. We opine this was mainly due to an increase in revenue from its digital media and content creation segment in 3QFY19.

Digital media segment shows notable progression. The segment has registered an increase in revenue by +20.0%yoy in 3QFY19, partially supporting the growth of its total digital segment of about +1.0%yoy in cumulative 9MFY19. This was due to its initiatives in its media ventures comprising of licensed and exclusive reseller products. For instance, the group secured advertising reseller partnerships from leading international and domestic digital platforms such as IGN and Mashable Southeast Asia, TechNave, Vocket and etc. Moving forward, we postulate that some of the licensing deals with revenue sharing mechanism of these platforms would continue to add value to its contents space and increase areas of monetisation opportunities for the group.

Promising “New Initiatives” under its transformation plan. The growth in the group’s “new revenue” (digital and commerce) has been showing improvement as of 9MFY19. Net revenue generated from this transformation was about RM232.3m, representing a growth of +6.0%yoy while the LATAMI narrowed by +51.5%yoy to -RM12.4m as of 9MFY19. Note that this new revenue has accounted for approximately 29.0% of the total net revenue while the rest are captured by its declining traditional segments. While the traditional segment continues to face the digital onslaught (-15.7%yoy), it was only able to be partially mitigated by the expanding business of its new revenue streams.

Earnings estimates. In view of deepened losses, we are cutting further our earnings forecast for FY19, FY20, and FY21 to -RM94m, -RM29.5m and -RM16.4m respectively. This is derived from an increase in our forecast finance cost and lower revenue anticipated for the weakening advertising expenditure.

Target price. We are revising our target price downward to RM0.30 (previously 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.

Upgrade to NEUTRAL. The traditional segment continues to suffer from the digital onslaught and weakening advertising expenditure environment as well as lower sales of newspaper. This is reflected through its widened 9MFY19 normalised 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. However, the digital segment and new initiatives under its transformation plans are showing positive progress for the company. The recent announcement of another aggressive second round of downsizing to cutting about one third of the workforce by 1Q20 is part of the restructuring efforts by the new shareholders. The quarterly improvement in narrowed losses should help to provide some signs of recovery albeit at a gradual pace. Going forward, we also opine that enhancing its revenue-generating abilities through its vast digital assets should be the key focus. In addition, we also of the view that the valuation for MPB is currently relatively fair as it is only trading at 4.0x price-to-book value as compared to its two-year historical average of 7.0x. All in, we are upgrading our recommendation on MPB to NEUTRAL (previously SELL).

Source: MIDF Research - 22 Nov 2019