Review

• Media Prima reported a FY16 core net profit of RM40.7mn (-70.6% YoY). Absent a seasonally stronger final quarter, results came in below ours and consensus estimates at 79.7% and 58.6%. A final dividend of 4.0sen (YTD: 8.0sen) was proposed.

• QoQ. Revenue growth disappointed at 0.6% QoQ, despite the year end normally being the strongest adspend period. Adex remains subdued, coupled with a shift in viewing patterns towards digital media. Core losses narrowed slightly to RM1.7mn.

• YoY. Losses were mainly attributable to its TV and Print division – on the back of the subdued adex environment. Despite this, TV revenue stood flattish, partly offset by revenue from CJ WOW SHOP. Part of its efforts to diversify revenue, the home shopping business recorded revenues of RM61mn in FY16 (launched in April 2016). EBITDA, however, trended lower due to increased operating costs related to the new business initiatives. Still in its gestation period, CJ WOW SHOP has a breakeven timeline of 18-24 months.

• Although cost management initiatives yielded results in lowering direct cost (-18.7% YoY) and total overheads (-0.1% YoY), this was insufficient to offset the decline in print revenues (-25.1% YoY). This led one off restructuring costs of RM97.9mn, related to the closure of its printing plants in Ajil, Terengannu and Senai, Johor.

Impact

• Imputing year-end figures into our model, we revise our FY17/FY18 earnings estimates by less than 1% to RM85.9mn/RM88.3mn.

Outlook

• Prospects for traditional media remains challenging in FY17. We expect advertisers to remain defensive amid looming uncertainties. The consumer sentiment index remains below 100, at 69.8 in 4Q2016. Additionally, a potential general election will only serve as a short term catalyst in our view. We are predicting a small recovery in adex of 2.3% YoY in 2017, based on a multiple of 0.5x our GDP forecast.

• In the 3QFY16, the group closed its printing plants in Ajil, Terengganu and Senai, Johor. The closure is expected to result in operational cost savings of RM20-24mn per annum, which are expected to be realised in 2017. That said, we do not discount the possibility of further restructuring efforts. This is on condition that the weak adex environment persists and its operations turns unprofitable

Valuation

• Our TP for Media Prima remains unchanged at RM0.85/share – based on a PE of 11x and CY17 EPS of 7.7sen. We remain negative on the stock, premised on structural challenges with its print and TV division. While there are efforts in place to diversify revenues, contribution from these ventures remain small and are likely to be a drag to bottom line in the near term. SELL

Source: TA Research - 24 Feb 2017