We maintain BUY on Media Prima (MPR) with a lower fair value (FV) of RM0.71/share (vs. RM0.86/share originally) due to a rolled forward valuation to FY23F and a reduced PE of 11x vs. 14x previously. This is in line with the PE valuation of regional peers, which saw an average decline of 8% in share prices. Our FV also reflects a 3% premium for MPR’s 4-star ESG rating.
Following a meeting with MPR last week, we cut the group’s FY22F net earnings by 8%, FY23F by 10%, and FY24F by 11%. This is to account for a more conservative recovery in adex spending and lower contribution from other business segments such as publishing and home shopping.
Despite the lower FV and earnings, we continue to like MPR. The integrated marketing solutions offered by Omnia gives a competitive edge to MPR in competing for marketing and promotional campaigns.
We expect improved earnings from MPR’s Out-of-Home (OOH) segment in 2QFY22 on the back of higher contribution from Omnia and cost rationalisation initiatives. Management attributed the recent quarterly loss of RM4.2mil in the OOH segment to higher costs of billboards.
To reduce fixed costs (40%-45% of OOH’s total costs) such as authority fees and rental, MPR is rationalising nonperforming sites and negotiating for more favourable terms with site owners. In FY21, the division recognised an impairment loss of RM8mil.
The publishing segment is important to MPR in spite of poor circulation revenue. We forecast the publishing segment to record an EBITDA of RM19.7mil in FY22F vs. RM21.9mil in FY21.
Although newsprint cost (US$750-900/MT) is rising, the impact is insignificant as newsprint only makes up 1.5% of MPR’s total operating costs. Also, newspaper sales, printing and distribution account for a mere 5% of the group’s 1QFY22 revenue of RM247mil.
As for the home shopping segment (17% of 1QFY22 revenue), MPR intends to leverage on Omnia’s extensive client base and diversified product offerings. About 80% of the product offerings are sold on a consignment basis.
Risk to home shopping revenue may be affected by consumers switching to physical shopping following the easing of the movement restriction order.
The stock currently trades at an attractive FY23F PE of 6.9x vs regional peer’s 14x.
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