Review

• Media Prima’s 9MFY19 core net loss of RM73.4mn disappointed ours and consensus estimates, accounting for 84.1% and 85.5% of respective full year net loss forecasts. The surprise on the downside was due to weakerthan-expected adex. Given the sustained weakness in adex, we expect the group to remain in the red in 4QFY19, albeit the downside should be cushioned by improved adex spend during the year-end festivities.

• YoY. Revenue fell 10.4% to RM801.4mn and core net losses widened 11.3% to RM73.4mn. This was mainly due to the on-going structural shift in media consumption from traditional to digital platforms which affected all the group’s traditional mediums including television, print, out-ofhome, and radio. Meanwhile, home shopping was the only segment that recorded top line growth with revenue up 11.9% to RM169.9mn, albeit it has yet to breakeven at the EBITDA level.

• QoQ. 3QFY19’s revenue declined 10.5% to RM265.5mn and core net loss widened 173.8% to RM24.2mn as adex spend softened following the Hari Raya Aidilfitri festivities in 2QFY19. Losses were led by print, and followed by the TV, radio, and home shopping segments while the digital, out-of-home, and content creation segments were profitable.

• Meanwhile, note that depreciation and amortisation had surged 67.6% QoQ and 156.5% YoY to RM48.5mn while finance cost increased 78.4% QoQ and 22.8% YoY to RM7.1mn due to the adoption of MFRS16, which requires the group as a lessee to recognise assets and liabilities arising from operating leases (i.e., off-balance sheet items). This includes the out of home segment’s sites as well as leased premises like Balai Berita Bangsar and Balai Berita Shah Alam, thereby having the impact of reduced opex but increased depreciation and finance cost.

• Despite the group’s weak financial performance, we remain comfortable on the sustainability of its operations in the near term with its leaner operations generating positive free cash flow (9MFY19: +RM16.8mn) and robust balance sheet with a net cash position of RM216.8mn or 19.5sen/share.

Impact

• Lowering our adex assumptions and adjusting our model to account for the impact of MFRS16, our net loss forecast for FY19/FY20/FY21 is raised by 10.2%/78.3%/117.5%. We now forecast sales growth in the corresponding period at -10.1%/-0.1%/+2.9% versus -3.6%/+2.7%/+2.2% previously.

Outlook

• As we have not seen the structural decline in traditional adex bottoming out, we expect Media Prima to continue facing challenging times ahead. Citing Nielsen Media Research’s data, industry adex (not including Pay-TV

and digital) in 9M19 declined 13.0%, dragged by print and free-to-air TV, which is at a faster pace than the decline of 10.1% in 9M18. Moreover, both business and consumer sentiment remained below the 100-point optimism threshold in 3Q19.

• Meanwhile, despite traction from new revenue streams like the digital and home shopping business, we only expect them to contribute meaningfully in the medium term as they currently go through their gestation phase and scale further. This is unless the group decided to take the inorganic route to accelerate their growth. Otherwise, there is also respite to the bottom line from imminent downsizing in conjunction with the group’s internal restructuring that was announced in early-November 2019.

Valuation & Recommendation

• Following our earnings cut, we arrive at a lower TP of RM0.22/share (previously RM0.30/share) based on a lower P/BV of 0.4x (previously 0.5x). Reiterate Sell as we believe the stock is fairly valued at current levels. Key risks include an unprecedented increase/decline in adex.

Source: TA Research - 22 Nov 2019