This article first appeared in The Edge Financial Daily on June 13, 2018
Media Prima Bhd
(June 12, 53 sen)
Upgrade to neutral with a higher target price of 42 sen: Media Prima Bhd narrowed its loss by 43.3% in the recent quarter. Quarterly revenue increased for the first time in first quarter of financial year 2018 (1QFY18) (+3.1% year-on-year [y-o-y]) since 3QFY13 as the digital and commerce revenue growth outpaced the drop in TV revenue. The decline in print revenue also narrowed to only 0.6% y-o-y compared with previous quarters’ double-digit contraction. Digital revenue grew to RM9.6 million from RM400,000, with net profit growing to RM3.4 million from RM200,000, mainly contributed by Rev Asia acquired by the group last year. In addition, Rev Asia is also assisting with digital-related business within the group such as print digital to improve the business. On the other hand, home shopping also delivered encouraging revenue growth of 58.8% y-o-y with net loss narrowing by 61.2% y-o-y in 1Q18. Media Prima aims to break even in its home shopping business in FY19. Moving forward, we believe that the new revenue streams from digital and commerce will be the growth driver for the group, offsetting the decline in traditional businesses, although earnings contributions are relatively small.
In the near term, catalysts for the sector include pickup in advertising expenditure (adex) driven by election spend, 2018 Fifa World Cup, improvement in adex sentiment post-14th general election (GE14), and potential increase in consumer spending due to the abolishment of the goods and services tax, and increase in readership and viewership due to the promise of media freedom by the new government, more balanced reporting and the increasing news flow in the country. Evidently, most of the media companies including Media Prima have seen a pickup in readership and viewership post-GE14. Media Prima’s TV adex (TV3, NTV7, 8TV, and TV9) increased by 10.6% y-o-y in April, which we believe was mainly driven by GE14, although the cumulative four months still saw a drop of 4.9%. Overall, total adex was flat y-o-y in April 2018, the month before GE14. The significant adex growth in FTA TV, radio, and cinema was offset by the decline in newspaper, magazine and in-store media adex. That said, in the long term we remain cautious about the structural shift in media consumption.
Similar to its peers, Media Prima is in the midst of optimising its operations. The group reaped cost savings in 1QFY18 from a series of restructuring exercises carried out last year. We expect more cost rationalisation (such as closure/disposal of inefficient operations/assets) and also more cost savings ahead (as the group made a provision for manpower rationalisation amounting to RM58.5 million in FY17 in addition to the Early Retirement Scheme one-off cost of RM52.3 million).
The group has been looking for the right buyer to dispose of its properties, especially the one in Senai, Johor (net book value [NBV]: RM19.4 million) and the one in Ajil, Terengganu (NBV: RM3.1 million), which could potentially result in a one-off sizeable disposal gain. The group’s estimated net tangible assets for FY19 still stand at 38 sen per share. We believe the group’s intangible assets such as TV programme rights still have value, adding on to this worst-case valuation. — PublicInvest Research, June 12