This article first appeared in The Edge Malaysia Weekly on March 19, 2018 - March 25, 2018

MEDIA Prima Bhd will continue to strengthen its position as the country’s largest digital media player through more mergers and acquisitions (M&A) in areas that complement its core businesses. These include online classifieds and online ticketing, says Media Prima Digital Sdn Bhd (MPD) chief executive Rafiq Razali.

“We look at pretty much everything that can help grow our business ... From a content perspective, we are already really big with Rev Asia Holdings Bhd plus NSTP but, in all honesty, there are still pockets where we are still not dominant.

“For example, classifieds — it is a huge business and it has pretty much gone from being a traditional print to a digital-first business. We are looking at various ways to address this and M&A could be a potential strategy.

“The ticketing market is also quite interesting because we invest a lot in our events. Naturally, if you have a ticketing arm, it ties together,” Rafiq says in an exclusive interview with The Edge.

To recap, Media Prima acquired Rev Asia Bhd subsidiary Rev Asia Holdings Sdn Bhd last year for RM105 million and its contribution has been included in MPD’s revenue and profitability since August.

Rev Asia Holdings’ contribution can be seen in the 71% jump in MPD’s revenue last year, even though it was only consolidated for five months. Last year, MPD saw revenue of RM55.52 million but reported a loss after tax (LAT) of RM2.3 million. According to Rafiq, the loss was due to a reversal of deferred taxation on an asset that has been on MPD’s books for several years. Without the exceptional item, MPD would have recorded a profit before tax (PBT) of RM4.9 million, compared with RM331,000 in FY2016, he says.

For the financial year ended Dec 31, 2017 (FY2017), Media Prima as a group made a net loss of RM669.67 million, compared with a net loss of RM69.78 million in the preceding financial year. The wider net loss was due to one-off exceptional items charged during the year.

The exceptional items are part of the group’s efforts to start with a clean slate this year and focus on its transformation into a digital-first media company. In total, the group charged RM497.4 million in exceptional items last year.

“We are taking the opportunity to make the necessary changes and deal with legacy assets and practices so we can live up to our vision of being a leading digital-first content and commerce company,” the group says in an emailed response to The Edge’s questions.

Media Prima embarked on a business transformation strategy called “Odyssey” in May last year, which, among others, seeks to reposition itself as a digital-first content and commerce company to capitalise on the increased demand for digital content and online commerce.

The group executed strategic initiatives to generate new revenue streams, such as the launch of home shopping business CJ Wow Shop, while concurrently taking measures to address the challenges faced by its traditional media businesses.

This includes The New Straits Times Press (M) Bhd, which has shifted its business towards digital publishing in line with the increase in demand for digital content.

At the segmental level, only the radio network business reported a profit last year, with a PAT of RM23.65 million. Its TV network business slumped into a LAT of RM112.86 million, from a PAT of RM22.24 million in FY2016.

However, the print business was still the biggest loser for Media Prima, with a LAT of RM433.05 million, compared with RM124.22 million in FY2016.

The bigger losses for the print business were due to the challenging print media business and an impairment on its publishing rights, property, plant and equipment amounting to RM220.48 million.

While the group has charged provisions on the value of its traditional businesses, the question lingers as to whether it was enough to stop the bleeding and allow the digital, non-advertisement revenue to grow.

Media Prima targets for revenue from digital sources to make up about 20% of the group’s total revenue by 2020 from the current 3%, while revenue from commercial and non-advertisement sources should contribute 40% of the total, from the current 20%. Advertising revenue from print, TV and radio will make up the balance 40%, from close to 80% now.

Rafiq believes MPD’s revenue will continue to grow and it will achieve the targets. This year alone, revenue is targeted to more than double while it maintains the same profit margins it enjoyed last year.

Based on MPD’s PBT of RM4.9 million and revenue of RM55.52 million, the division’s gross profit margin was 8% to 9%. If revenue were to double this year to RM111 million, PBT would be RM8.88 million to RM9.99 million.

Not only will FY2018 be the full-year contribution from Rev Asia Holdings, MPD will also continue to monetise Media Prima’s strong intellectual properties into new business ventures through Media Prima Labs.

It will also invest heavily in eSports this year. Its MyGameOn has hit 300,000 unique visitors within just three months of launching and efforts to grow the segment will continue with partnerships with local and international game publishers, says Rafiq.

“It’s going to be three sources of revenue; Rev Asia Holdings is core, and it’s going to be a chunky part of our revenue growth, but the rest will come from other businesses that we have invested in over the past few years and [are] maturing, plus eSports, which is a new venture for us,” he says.

Besides growing its digital, commerce and non-advertising revenue, the group also aims to expand its reach beyond Malaysia. Media Prima expects the regional market to make up 10% of its revenue, up from 2% presently.

Currently, only the content creation business has sold its products to markets outside Malaysia. However, Media Prima has plans for Big Tree, its billboard advertising company, to venture into other Southeast Asian markets to boost the group’s regional revenue.

The group is optimistic that the digital and commerce initiatives will continue to record growth in revenue this year on the back of a promising performance  last year. Nonetheless, the traditional media business will continue to be the primary contributors to Media Prima’s earnings in the near future.

Closing at 43.5 sen last Thursday, Media Prima had a market capitalisation of RM482.5 million. Its net gearing as at Dec 31, 2017, was 0.15 times.

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