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BUY, lower MYR0.59 TP from MYR0.87, 55% upside, c.5% yield. Media Prima’s leading exposure to free-to-air (FTA) advertising expenditure (adex) renders it susceptible to a slowdown if overall adex sentiment takes a turn for the worse. We pare down FY22-FY24F core earnings to reflect weaker ad spending propensity. Our TP is now pegged to 0.6x FY23F P/BV mean (1.0x previously), at -1SD below historical mean and 11x FY23 EPS (2% ESG premium imputed).
Ad spending losing steam. May gross industry adex fell 2.7% YoY, the first decline since Jan 2021. It was also the second consecutive month of decline, notwithstanding the Aidil Fitri festival which coincided with the long labour day weekend. We see downside to adex in the coming months, with the heightened geo-political risks, runaway inflation, and the interest rate upcycle. The negative impact would rub on media companies, especially those with higher reliance on mainstream adex. Adex revenue makes up >70% of MPR’s revenue.
MPR’s dominant free-to-air (FTA) adex share could be a bane, but integrated ad sales solution should cushion the impact. April-June (2Q22) gross industry adex numbers are likely to buck seasonal trends, down 5-7% QoQ, by our estimates. Gross (FTA) adex – a good gauge of MPR’s underlying adex momentum – fell c.15% YoY in May (the sharpest drop since the onset of the pandemic). Based on its share of industry FTA adex, MPR’s FTA adex would have fallen 18% YoY in the same month or - 4.5% YTD-May. This compares with 1Q22’s 14.5% YoY growth. We lower FY22-24F core earnings by 20-24% to factor in lower ad spending propensity, having also adjusted our margin assumptions. The holistic sales of ad inventories (via Omnia), where more optimal solutions are pushed to advertisers in the wake of the challenging environment, should provide some cushion to ad sales, in our view.
Election play? There is some correlation between the performance of media stocks and polling dates, but the relationship is not entirely conclusive. We note investors were better off accumulating media stocks in the run up to GE14, with the best gains notched three months thereafter. For GE13, media stocks saw optimal gains 3-6 months into the polling day. Discerning the performance of media stocks for the upcoming polls is as good as hazarding a guess on the outcome of GE15, in our view.
Valuation and risks. We believe our valuation is reasonable as the group has returned to the black in FY21 (after four consecutive years of losses) with a significantly resized cost base. In our view, the 22% share price decline over the past two months has priced in downside risks to a certain extent. Key risks: Sharper-than-expected drop in ad spending, weaker-than-expected earnings, and slower-than-expected recovery in economic activities.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....