This article first appeared in The Edge Financial Daily on December 4, 2017

Media Prima Bhd 
(Nov 30, 64.5 sen)
Downgrade to sell call with a lower target price (TP) of 52 sen per share: Media Prima Bhd reported a third quarter of financial year 2017 (3QFY17) loss of RM101.1 million. After adjusting for exceptional items amounting to RM50.8 million, 3QFY17 normalised loss amounted to RM50.3 million (3QFY16: -RM6.2 million). The bulk of the exceptional items pertained to early retirement scheme (ERS) payment of RM52.3 million. The quarterly performance was negatively impacted by the declining trend of core advertising revenue. 

Cumulatively, nine-month FY17 (9MFY17) normalised loss amounted to RM76.7 million as compared to 9MFY17 normalised earnings of RM38.4 million. The shift to digital media continues to significantly affect the group’s traditional media business. In addition, we view that the existing cost structure can no longer match the revenue generated from the various business segments. 

All in, Media Prima’s 9MFY17 financial results came in severely below ours and consensus earnings estimates.

We are now expecting Media Prima to report losses for FY17 and FY18 of RM117.5 million and RM63.6 million respectively due to the challenging business landscape and unsustainable cost structures. As such, we are also assuming that the group will not be paying any dividend for both financial years. 

We are lowering our TP to 52 sen (previously 77 sen). This is based on pegging the revised FY18 forecast book value of 69 sen (previously RM1.10) against the forward price-to-book value ratio (P/BV) of 0.75 times which is the three-year historical rolling average. To recall, due to the volatility and unpredictability of the group earnings in the near term, we have shifted our valuation methodology to P/BV from the price-to-earnings ratio previously.

Media Prima’s traditional core businesses continue to impact the group’s overall financial performance, which has severely impacted its retained earnings position. This has led the company to rethink its business models in entirety via the execution of its “odyssey strategy”. The group is now aiming to grow its revenue in non-advertising, non-TV/print, international and digital segments.

While we applause the group’s effort to reform, we do not expect any significant turnaround in the near term. Moreover, we anticipate Media Prima to be loss-making in FY17 and FY18. 

Due to the adverse business conditions and depleting cash reserves, we do not think that the group will pay any dividend in the near term. All factors considered, we are downgrading our recommendation to sell from neutral previously. — MIDF Research, Nov 30