KUALA LUMPUR (Aug 23): Media Prima Bhd has been downgraded to "reduce" by CGS-CIMB Research with more losses projected going forward, regardless of whether a mandatory general offer (MGO) — the only catalyst — will be triggered by its new largest shareholder Tan Sri Syed Mokhtar Albukhary.
CGS-CIMB Research also cut its target price for Media Prima to 38 sen (from 48 sen).
This is as the loss-making media group will require a "significant overhaul in operations to turnaround", after the group reported a first-half (1HFY19) core net loss that is much bigger than analysts' forecasts.
The research house also opined that Media Prima's years-long cost cuts could enervate content quality, perpetuating a vicious cycle of revenue falling faster than costs.
"While intuitively, companies will look at rationalising its costs when revenue is on a downtrend, we feel that Media Prima has been cutting its traditional segments' costs far too much and for far too long.
"This may affect its content quality and employees' morale, which could magnify the adex decline. Ultimately, advertisers only want to be associated with shows and products that attract the most eyeballs," CGS-CIMB Research said in a note today.
In 1HFY19, Media Prima, owner of TV3, 8TV, ntv7 and TV9 channels and publisher of the New Straits Times, Berita Harian and Harian Metro newspapers, posted a net loss of RM49.23 million, compared with a net profit of RM10.13 million in 1HFY18. The net profit for 1HFY18 was also contributed by a one-off gain on sale of shares in an associate amounting to RM45.3 million.
Revenue for 1HFY19 declined 14% to RM535.87 million from RM623.04 million in 1HFY18.
CGS-CIMB Research said the 1HFY19 core net loss made up of 91% of Bloomberg consensus' RM56.4 million FY19F net loss forecast and 143% of the research house's full-year estimates of RM36 million.
"We increase our FY19-20F net loss forecasts by 224-692%, and FY21F is now at a net loss. This is to reflect the higher depreciation and interest expenses, and slower topline growth for CJ Wow Shop," it said, adding that Media Prima's management had at the results briefing expressed doubt that the home shopping segment is able to break even in FY19.
Shares in Media Prima have been trading unchanged at 48 sen so far today, bringing a market capitalisation of RM532.42 million.