KEY INVESTMENT HIGHLIGHTS

• MPB returns to the black with normalised earnings of RM3.1m as compared to -RM23.8m in 3QFY19
• Net advertising revenue to face larger decline but partially compensated by home-shopping and digital media segment
• Losses estimates for FY20, FY21 and FY22 narrowed to -RM60.7m, -RM58.5m and -RM33.0m respectively
• Maintain NEUTRAL with revised target price of RM0.20

Above our expectation. Media Prima Berhad (MPB) returns to the black in 3QFY20 with normalized earnings of RM3.1m as compared to - RM23.8m in 3QFY19. We gather that this recovery is primarily on the back of lower operating expenses driven by ongoing cost optimization initiatives made by the group. To note, we have excluded the waivers on lease payments and rebates on license fee amounting to RM9.7m in the normalised earnings calculation. Meanwhile, the group registered 9MFY20 normalised losses of -RM46.2m, which came in above and within our and consensus expectations respectively.

Net advertising revenue to face larger decline. Cumulatively, the group’s 9MFY20 revenue dropped by -7.2%yoy to RM743.5m. The drop in revenue was mainly due to the decline in net advertising revenue by -19.9%yoy to RM448.0m in 9MFY20. In view of persistent negative effects of the pandemic on the adex environment, we do not foresee much near-term improvement in terms of growth in net advertising revenue.

Home-shopping segment on the other hand remains as savior with recorded top-line growth of +36.0%yoy. MPB’s e-commerce arm, WOWSHOP recorded a huge +36.0%yoy growth in its top-line to RM230.9m in 9MFY20. We believe this growth will continue to escalate over the intermediate term, fueled by accelerating shifts of consumers shopping patterns from physical retail to e-commerce coupled with the persistent growth of the Malaysian e-commerce market.

Digital Media segment shows notable progression. Plus, Digital Media segment recorded a +13.9%yoy growth in revenue to RM60.6m in 9MFY20. The increase is mainly attributable to stronger synergies achieved as the group’s digital assets have been consolidated under REV Media Group. Looking ahead, we anticipate digital media to continue to grow as we foresee a continuous rise in digital advertising expenditure as more advertisers are opting for digital advertising to further enhance their consumer engagement. At this juncture, the earnings contribution is nonetheless still insufficient to make up for the fall in earnings from the group’s traditional businesses.

Forecasts. Factoring in the better-than-expected financial performance this quarter along with ongoing business transformation initiatives made by the group, we have adjusted our losses estimates for FY20E/FY21F/FY22F to -RM60.7m, -RM58.5m and -RM33.0m respectively.

Target price. Based on our revised estimates, we derive a new TP of RM0.20 (previously RM0.17). Our TP is derived by pegging a target price-to-book ratio of 0.5x (equates to its two-year historical average) to its FY21 book value per share estimate of 40sen.

Maintain NEUTRAL. Moving forward, we posit that businesses across all major sectors to continue being cautious on their advertising budget as a way to conserve their cash flow. Thus, we remain wary that earnings from the group’s traditional platforms could potentially continue to decline. However, we are positive on the prospects of MPB’s homeshopping and digital media segment, along with ongoing cost optimization initiatives made by the group in reducing their overheads. All in, we maintain our NEUTRAL recommendation on MPB.

Source: MIDF Research - 19 Nov 2020