KUALA LUMPUR (June 4): CGS-CIMB Securities Sdn Bhd may have to review its forecasts for Media Prima Bhd, once the company confirms whether it is indeed going for another round of mass layoffs, and if it provides more information regarding the exercise.
CGS-CIMB analysts Kamarul Anwar and Mohd Shanaz Noor Azam, quoting news portal FMT's report yesterday (3 June), wrote in a note today that Media Prima “is likely” to undergo another round of mass retrenchments involving some 300 employees.
"As at writing (this CGS-CIMB report), Media Prima has not issued a statement regarding the (FMT) report’s veracity. According to sources in the report, c.300 employees would be let go this time. It is unclear whether the cuts would affect all of Media Prima’s group of companies like the preceding round, or if this would concern only its 98.2%-owned New Straits Times Press (M) Bhd (Unlisted). FMT said that editorial staff members are likely to be retrenched.
"We keep our FY20-22F LPS (loss per share) forecasts for now. Our TP (target price for Media Prima shares) remains at 19 sen, valuing the stock at 0.5x FY21F P/BV. We believe the only hope for Media Prima could come from a potential privatisation. A major downside risk is if advertising expenditure falls more than we expect during the MCO (movement control order).
"Reiterate Add (call for Media Prima shares); fingers crossed for a privatisation,” Kamarul and Mohd Shanaz said.
Media Prima’s financial year ends on December 31. For 1QFY20, the company said net loss narrowed to RM29.54 million from a net loss of RM40.41 million a year earlier, while revenue was lower at RM238.44 million versus RM239.10 million.
Media Prima’s latest reported net assets per share stood at 51.31 sen. At Bursa today, Media Prima's share price settled up 0.5 sen or 3.23% at 16 sen, for a market capitalisation of RM177.47 million.
Looking back, the CGS-CIMB analysts said Media Prima’s mass layoffs in Dec 2019 to March 2020 reduced its headcount by just under 1,000 people, or about 26% from 3,867 employees as at end-2018.
Contrary to what the FMT wrote in its report, the CGS-CIMB analysts said the speculated upcoming retrenchment exercise will not be the second time that Media Prima will do so.
"Its headcount peaked at 4,793 in FY10. In FY14, it conducted its first mass layoffs that pushed down its staff strength to below 4,200. For the Dec 2019-Mar 2020 round of retrenchments, the group expensed RM143.3m for termination benefits, which should work out to over RM143,256/employee. If we use this figure for the upcoming round of layoffs, Media Prima may have to take a RM43m hit in its bottomline, or 3.9 sen/share. This is on top of the 8.8 sen LPS (loss per share) that we have forecast for FY20F.
"The question that we have right now is whether Media Prima will be able to stomach more major one-off expenses. In 1QFY20, we estimated its cash burn rate came to RM69.9m/month. Its cash and cash equivalents stood at RM393.3m. In that quarter alone, the group drew down RM157m from an RM180m term loan facility. We expect that it will perform worse in subsequent quarters, as advertisement buys are dissipating the longer the MCO is in place.
"With letting more people go, MediaPrima is bleeding its greatest asset: human capital. Having recurring mass layoffs could also affect its remaining employees’ morale, which may impede their creativity and consequently, enervate the content,” they said.
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