KUALA LUMPUR (June 5): Hong Leong Investment Bank Research (HLIB) has maintained its "hold" call on Media Prima Bhd at 16 sen, with an unchanged target price (TP) of 17 sen pegged at a price-to-book (P/B) multiple of 0.4 times (roughly -2 standard deviation below the three-year mean), reflecting prolonged weakness to return to the black, coupled with severe impact of Covid-19.

Yesterday, theedgemarkets.com reported that Media Prima had confirmed a possible staff lay-off as it expedited the next phase of its business transformation that will include revising revenue models and corresponding cost management.

In a note today, HLIB analyst Syifaa’ Mahsuri Ismail said even though the management was tight-lipped about the number of employees to be affected (citing a news portal, Free Malaysia Today), HLIB gathered that about 300 employees (11% of the current workforce of about 2,600) will be let go in this round of exercise.

“Based on our back-of-the-envelope calculations (using the similar above-mentioned exercise as a benchmark), Media Prima will need to fork out about RM33 million. Taking this into account with the loss forecast that we have imputed, we view that this might tighten their belt even further.

“Assuming the retrenchment cost is incurred fully this year, this would widen our loss forecast from -RM74.9 million to -RM107.9 million on a pro forma basis,” Syifaa’ said.

However, this will result in longer-term staff cost savings after the retrenchment exercise, she noted.

She said based on the financial year 2018 (FY18) annual report, Media Prima then incurred a total employee cost of RM382 million (ex-termination benefits) on the back of 3,897 in headcount, translating into staff cost of RM98,000/employee per annum.

“As such, the reduction of its headcount by 300 would result in longer-term staff cost savings of RM29.4 million from FY21 onwards.

“Adding the savings back to our current FY21 loss forecast (-RM45.5 million) would result in a narrower loss of -RM16.1 million on a pro forma basis.

“We leave our forecasts unchanged pending more clarity from the management in the details,” Syifaa’ added in the note.

As at 10.37am today, shares in Media Prima were unchanged at 16 sen, valuing the group at RM177.48 million. It saw some 3.22 million shares traded.