KEY INVESTMENT HIGHLIGHTS

• 4QFY19 earnings turned into black to RM7.4m since 2QFY17 as compared to –RM66.2m in 4QFY18

• FY19 normalised losses almost halved to –RM62.8m (+47.7%yoy) which is above our and consensus expectations

• Recovery in 4QFY19 normalised earnings indicates healthy signs from the group’s first phase of transformation plan

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

• Upgrade to BUY with revised target price of RM0.32

Above expectation. Media Prima Berhad (MPB) 4QFY19 results turned profitable since 2QFY17 which posted normalised earnings of RM7.4m (+111.1%yoy). This recovery was primarily driven by the improvement in traditional and digital ad spend as well as higher grossing box office movie such as ‘Ejen Ali’ of approximately RM30.0m. Meanwhile, the group’s FY19 normalised losses narrowed by almost halved of to -RM62.8m (+47.7%yoy). This was above our and consensus expectations, accounting for only 67% and 65% of the full year estimates of losses respectively. The exceptional items amounted to about RM100.0m which was mainly comprised of the provision for rightsizing exercises.

New revenue more than doubled. Improving contribution from its new revenue sources (i.e. digital and commerce) under the transformation plan has been promising as it has grown by two-fold between FY17 and FY19. The new revenue had accounted for 29% of total revenue in FY19 which amounted to RM318.0m in FY19, presenting encouraging performance from its new revenue-generating initiatives. This saw the group’s net revenue from commerce activities rose by +9.0%yoy to RM270.6m as mainly driven by its digital (+20.0%yoy) and home-shopping segments (+9.0%yoy). Moving forward, the group has also set a target of RM290.0m net revenue from CJ Wow Shop in FY20.

A leaner operation. The group’s manpower rationalization is expected to be completed by 1QFY20 and reduced its workforce by about one-fourth, primarily from the TV segment. This could result in a 9-month estimated cost savings of RM70m in FY20 and an annual saving of RM80m moving forward. In addition, the group plans to focus on more cross pollination of content and integration of sales within its vast array of media and digital assets. We opine that this is a good move to further improve operational efficiency and capitalize on any opportunity gap.

Printing segment. The increase in 4QFY19 circulation and revenue from the group’s publishing arm were mainly driven by less competition after the closure of Utusan Melayu. This has partially led to the higher utilization rate at its printing plant at about 80% from <50% previously.

Source: MIDF Research - 27 Feb 2020