Review

• Media Prima’s reported FY24 core net profit of RM62.3mn was lifted by several one-off items including: i) net reversal of impairment of financial instruments (RM4.1mn), ii) impairment of PPE (RM4.6mn), iii) impairment of investment in associates (RM1.3mn), and iv) Provision for site restoration (RM5.1mn). FY24 core net profit of RM62.3mn came above ours and consensus full-year estimates at 158.0% and 322.5% respectively. The positive variance was due to stronger-than-expected margins, which resulted from the improvement of operational efficiencies and cost management measures.

• 4QFY24’s revenue declined (-9.4% QoQ, -13.4% YoY) to RM193.1mn. The decline in revenue was primarily due to lower performance from OMNIA and broadcasting segment as challenging market conditions persisted. However, 4QFY24’s core net profit surged to RM45.7mn (previously RM2.0mn), largely driven by improved operational efficiencies, expansion into the small and medium enterprise (SME) market, and successful cost management initiatives.

• The group declared a first and final single-tier dividend of 1.5sen/share, same as corresponding period last year.

• Media Prima maintained a robust balance sheet with a net cash position of RM162.1mn or 14.6sen/share (-4.5% QoQ, -12.1% YoY).

Impact

• We have raised our earnings forecasts for FY25 and FY26 by 86.4% and 74.0%, respectively, based on the assumption that management can maintain some of the cost efficiencies observed in 4QFY24. However, since we have only seen one quarter of this strong performance that followed weaker results in prior quarters, there is uncertainty around the sustainability of these margins. As a result, we opted for a more cautious approach, refraining from extrapolating the 4QFY24 earnings. We also introduce FY27 earnings forecasts of RM84.9mn.

Outlook

• Recent data by Nielson Media Research showed that the Industry Adex for 2QCY24 has fallen to RM1,265.0mn (-4.5% QoQ), slightly above the 5-year average of RM1,231.7mn. With July's adex declining to RM417.9mn, below the 3-year average of RM429.3mn, we get an early glimpse into 3QCY24's performance. However, we expect adex to remain around the average level with an upward bias, as the impact of boycotts may diminish, potentially boosting adex spending.

• Management previously noted that the subdued adex is likely not structural. From discussions with advertisers, they have learned that the reduced spending is temporary and is expected to pick up once macroeconomic conditions improve.

• To that end, Media Prima remains guided by its 3-year business plan to drive long-term sustainable growth. Leveraging on its strength as an integrated media group, Media Prima is well-positioned to attract more clients through enhanced content and boost sales revenue. This includes leveraging the upgrade on their digital billboards, which offer improved pricing power. These initiatives are believed to make Media Prima stay relevant in the industry and improve sales revenue.

Valuation & Recommendation

• Corresponding to our revision in our net profit forecast and the improved operational efficiency, our TP for Media Prima has been revised higher to RM0.46 (previously RM0.40) based on P/BV of 0.7x (previously 0.6x) CY25F BV with an ESG Premium of 3%. However, we maintain our Sell recommendation on the stock as its risk-reward potential remains unfavourable. We view stronger-than-expected adex and stable top-line margins as a key rerating catalyst for the stock.

Source: TA Research - 29 Aug 2024