Media Prima's purchase of Rev Asia for RM105m a positive move, says RAM Ratings

Media Prima annouced to Bursa Malaysia the proposed acquisition was expected to provide it with an opportunity to solidify its presence in the digital publishing business, which in turn is expected to facilitate the continued growth of the enlarged group moving forward.

KUALA LUMPUR: Media Prima Bhd’s RM105mil purchase of Rev Asia Holdings Sdn Bhd (Rev Asia) for RM105mil is a positive over the near term but still insufficient to offset the decline in earnings from the traditional media platforms, says RAM Ratings.

RAM’s head of consumer and industrial ratings Kevin Lim said on Friday the proposed acquisition was expected to provide an avenue for Media Prima to reduce its dependence on traditional media assets and/or strengthen its media outreach.

“Earnings contributions from the new unit over the near term are not anticipated to be sufficient to make up for the steady decline in earnings from the group’s traditional media platforms in the past few years,” he said.

Media Prima's purchase plan of the digital media company would not have an immediate rating impact, the ratings agency said. 

The acquisition is anticipated to be financed by internally generated funds. 

“We note that Media Prima held a sizeable cash pile of around RM375mil against RM300mil of debt as at end-December 2016. 

“While the group is not envisaged to stay in a net cash position, its balance sheet is expected to remain very conservative, with a net gearing ratio of about 0.02 times,” Lim added.

The corporate exercise is expected to be completed by the third quarter of 2017.

Digital assets under Rev Asia to be acquired by Media Prima include Malay, English and Chinese-language portals such as OHBULAN!, SAYS, Viral Cham, Rojaklah, JUICE, 8Share, MyResipi, KongsiResipi.com and SirapLimau. 

RAM Ratings said the corporate exercise would enable Media Prima to capitalise on Rev Asia’s strengths as well as expand its digital reach to become the largest Malaysian digital platform in terms of number of unique visitors. 

“The generally younger audience of these sites will further provide Media Prima access to the urban, tech-savvy segment of the population (18-35 years old), complementing its current more mature market. 

“Additionally, we note that these digital assets will enhance the media conglomerate’s existing business profile, allowing it to cross sell its products/services across a wider range of platforms,”  Lim  said.

RAM Ratings pointed out that due to the decline in traditional advertising expenditure (adex) and growing popularity of digital platforms, Media Prima’s acquisition plan was a positive effort to diversify its income stream. 

“Notably, real adex (for TV and newspapers) is estimated to have slipped some 9% y-o-y in 2016, in light of the still-weak consumer sentiment and shift away from traditional platforms. 

“In 1Q FY 2017, non-discounted adex (by Nielsen) is also reported to have dropped a further 15%. We expect adex to stay muted going forward, although there may be an upside from the 2017 Southeast Asian Games and a possible general election this year,” it said.

Media Prima carries corporate credit ratings of AA1/Negative/P1, as does its RM500 million CP/MTN Programme (2012/2019). 

Besides the increasing threat from digital media, the negative outlook continues to reflect our concerns over the group’s reduced print circulation as well as lingering uncertainty surrounding the rollout of digital terrestrial TV (DTTV). 

Media Prima’s print circulation across its three papers was down 19.4% in January to June 2016 from July to December 2015, twice the industry (players audited by the Audit Bureau of Circulation Malaysia) decline of 9.6%.