• Keep BUY and MYR0.59 TP, 20% upside, with c.4% yield. Media Prima’s results were broadly in line, with a sequentially stronger showing following the ramp up in economic activities and advertising expenditure (adex) expansion. We see continued improvement, off a low base, but remain cognisant of the inflationary environment which may dampen adex recovery. Our TP is pegged to 0.6x FY23F P/BV mean, at -1SD below historical mean and 11x FY23 EPS (2% ESG premium imputed).

• Results broadly in line. Adex revenue rebounded 12% QoQ (1Q22: - 26.1% QoQ), supported by the Aidil Fitri festivities and reopening of the economy. However, the struggling home shopping and publishing segment dragged down performance, leading to lower 1H22 revenue of MYR508.1m (-7% YoY). Despite this, EBIT margin was higher at 10.1% (1H21: 7.9%) due to lower operating expenses, which led to higher core profit of MYR21.8m (+17% YoY). Overall, we deem the results to be in line, at 36% of our/consensus’ estimates, as adex is typically stronger in 2H22.

• Omnia leading the line. In 1H22, Omnia, the advertising solutions arm, continues to be the group’s key driver, delivering solid revenue growth of 26% YoY as advertising increased across its platforms. Broadcasting and out-of-home were up 14% and 13% YoY as these segments saw gradual demand recovery after being impacted by the movement restrictions. For the publishing (New Straits Time) segment, while revenue contribution continues to fall (-8% YoY) due to the changing news consumption environment, it remained in the black thanks to its right-sized cost structure. We believe there is further upside for content sales (which rose 39% YoY) thanks to the increase in demand for local content from new and existing streaming providers.

• WOWSHOP continues to struggle. Since the home shopping segment’s peak in 2Q20, contribution from the segment has declined every quarter, as shoppers returned to physical/retail outlets. 2Q22 sales were down 2% QoQ (-44% YoY), resulting in a LAT of MYR4.4m (-4% QoQ), making it the third consecutive quarter of losses. While the group is focused on revamping its e-commerce capabilities to accommodate Malaysians’ preference for in- store shopping, we think the inflationary environment will delay the segment’s recovery.

• Forecasts and risks. We maintain our forecasts. While we are cautious on the impact of a weaker adex on MPR (adex makes up >70% of total revenue), we continue to like the stock for its earnings turnaround after four consecutive years of losses. The valuation of the stock remains undemanding, trading at below historical P/BV mean. Key risks: Sharper- than-expected drop in ad spending, weaker than-expected earnings, and slower-than-expected recovery in the economy.

Source: RHB Research - 25 Aug 2022