We came away from a meeting with Media Prima recently with the following few key takeaways:

(i) 3 Years business plan strategy
(ii) Consumer boycotts remain a challenge to major adex spenders
(iii) Continuous Strong Competition from Foreign Tech Giants
(iv) Strong efforts in ESG initiatives

A slightly higher revision on target price of RM0.40 (previously RM0.36) based on P/BV of 0.6x CY24F BV with ESG Premium of 3%.

3 Years Business Plan Strategy

Media Prima's three-year business plan focuses on three key pillars: Content Boost, Inventory Premiumisation, and New Revenue Stream.

1. Media Prima is prioritising content for their streaming platform, Tonton, while also evaluating content deals with other streaming services. They are enhancing their content strategy with a "Digital First" approach and collaborating with influencers to boost brand awareness, leveraging their follower base. Their online news portals, myMetro (hmetro.com.my) and BH Online (bharian.com.my) are the most-read news portals in Malaysia, with 3.1mn and 3.0mn average monthly unique visitors, respectively, as of March 31, 2024.

2. Media Prima's subsidiary, Big Tree, is focusing on inventory premiumisation by upgrading billboard sites to digital, which commands a higher price as they are more eye-catching and dynamic, attracting more attention from viewers. Digital billboards can also change content quickly and easily, allowing for more targeted and timely campaigns.

3. Media Prima has explored a notable new revenue stream through WOWSHOP by utilizing a TikTok account for marketing and sales, targeting a younger demographic. They are also creating new products associated with famous brands, such as the Le Nona product series, and developing new intellectual properties (IPs).

Boycotts Remain a Challenge to Major Adex Spenders

Several brands have faced customer boycotts for their “perceived” support of Israel. In response, many brands have been compelled to withdraw or scale back their advertising campaigns to avoid further negative exposure.

As a result of these boycotts and the prevailing negative sentiment, major advertisers are reducing their advertising budgets. The geopolitical instability has created a challenging business environment, prompting advertisers to adopt a more cautious approach to spending. Companies are redirecting their resources toward crisis management and public relations efforts to protect their brand reputation, further diminishing their advertising expenditure.

This reduction in advertising spending has significant financial repercussions for Media Prima. Their revenue has dropped by 4.7% on a QoQ basis and a mere growth of 1.1% YoY based on their latest filing. This trend is apparent across multiple media segments, including television, digital, and print.

Continuous Intense Competition From Foreign Tech Giants

The dominance of big tech companies, notably Google and Facebook, has fundamentally disrupted traditional media business models. In Malaysia, these tech giants command an estimated 80% to 90% of digital advertising revenue, significantly impacting the financial viability of traditional media outlets. This monopolistic control over digital ad spend presents substantial economic challenges for media companies, undermining both advertising and subscriptionbased revenue streams. The lack of a regulatory framework exacerbates these challenges, allowing big tech firms to operate with less oversight and accountability, further complicating efforts to manage misinformation, bias, and content control.

Strong Efforts in ESG Initiatives

(i) Environmental: Media Prima has implemented an automated emissions measurement system that covers all three scopes of greenhouse gases. By leveraging an AI-enabled GHG emissions measurement engine, they obtain more granular data, offering better insights to refine their sustainability roadmap over time. A key highlight of their approach is the continuous improvement of their dashboard, which is commendable.

(ii) Social: Media Prima is dedicated to responsible content curation and has established policies for identifying, encouraging, and nurturing new talent. The organization supports the United Nations Standards of Conduct in addressing employee discrimination and is actively engaged in CSR initiatives. Additionally, they have aided in medical, poverty/hardship and education by contributing RM802k, RM108k and RM20K respectively.

(iii) Governance: The association with political connections has muted the governance score. However, the group remains dedicated to adhering to the highest standards of corporate governance best practices and guidelines. The board of directors boasts a strong level of independence at 83%, and improvements in gender diversity (with 33% female representation) are expected to influence the governance score positively. Additionally, the group demonstrates clear transparency through regular stakeholder engagement.

Our View

We acknowledge that Media Prima faces significant challenges from market conditions and intense competition from foreign tech giants. However, we believe Media Prima’s true value lies in OMNIA, which delivers tailored solutions through its professionalism, experience, comprehensive advertising ecosystem, and valuable data. Backed by its three-year business plan, OMNIA 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.

Hence, we have increased our forecast on certain revenue pillars of MEDIA PRIMA. One notable change was our adjusted revenue growth for OMNIA to 7% and 8% (FY25 and FY26, respectively), from 2% for both previously. Additionally, for FY25 and FY26, we have increased the Out-Of-Home revenue growth forecast to a CAGR of 5%, up from the previous CAGR of 2.5%.

Impact

We have revised our FY24/25/26 core net profit forecast by +6.0%/+32.1%/+32.4% due to a slightly better outlook for Media Prima and indications of a recovery in industry adex; RM1.2bn in 1Q23, which increased approximately 22.5% steadily to RM1.4bn in 4Q23. However, recent data suggests a slight decline (-8.5% QoQ) in the positive momentum, with the latest figures showing RM1.3bn in 1Q24. Despite this, the current level remains at the higher end of the historical range over the past five years, with the mean at RM1.2bn.

Valuation & Recommendation

Corresponding to our revision in our net profit forecast, our TP for Media Prima has been revised slightly higher to RM0.40 (previously RM0.36) based on P/BV of 0.6x CY24F BV with 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 as a key rerating catalyst for the stock.

Source: TA Research - 6 Aug 2024