CIMB Research sees challenging 2017 for Media Prima

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: CIMB Equities Research expects Media Prima to remain in the red in FY17 and it has cut its FY18-19F EPS by 50%-59% to account for larger declines in traditional print and TV advertising expenditure (adex). 

It said on Tuesday the media group expects print adex to decline by about 10% per annum. 

“We think 2017 will be challenging due to the sluggish adex outlook given the persistent weakness in consumer sentiment from uncertainties in the domestic economy. 

“The ongoing shift in consumer preference towards digital media is also negatively affecting the adex share for traditional platforms,” it said.

CIMB Research said the group completed the acquisition of Rev Asia Sdn Bhd in August.
Hence, the research house expects to see stronger contribution from digital adex in 2H17. 

Media Prima has guided that the digital adex market will double in size by FY20F, and it looks to ride this growth via its enlarged suite of digital assets which target a broad audience. 

“We switch our valuation from 13 times P/E (based on a 20% discount to target market P/E) to a price-to-book value (P/BV) multiple in view of its potentially prolonged losses. 

“Maintain Reduce rating with a lower 68 sen TP, based on 0.6 CY18 P/BV, two standard deviation below its historical mean of 0.9 times in view of its challenging operating outlook. 

“While we like Media Prima’s initiatives to contain its exposure in the declining print segment, we are concerned that the cost rationalisation measures may not be able to catch up with the decline in traditional adex,” it said.

To recap, Media Prima’s 1H17 results were below its and consensus expectations due to lower-than-expected adex and higher operating cost for digital business initiatives. 

Media Prima reported a core net loss of RM28.7mil in 1H17 compared to a core net profit of RM45.8mil in 1H16 due to lower adex and higher opex.  

Sequential earnings improvement in 2Q17 driven by festive season  Revenue in 2Q17 climbed 21% on-quarter to RM329mil, driven by adex recovery across traditional platforms such as TV, print, radio and outdoor during the festive season. 

As a result, the group posted core net profit of RM9.7milin 2Q17 against RM38.2mil core net loss in 1Q17. 

Media Prima carried out an asset impairment on its 21.4% associate, Malaysian Newsprint Industry (MNI), for RM142.4mil in 2Q17 due to a challenging operating outlook in print. 

The 1H17 revenue fell by 8% on-year due to lower adex (-15%) on the back of a structural shift in consumer preference towards digital platforms. 

For example, its TV network operations posted a net loss of RM20m in 1H17 vs. RM22m profit after tax in 1H16. 

“Meanwhile, the group also incurred higher opex due to new ventures such as home shopping, which posted RM8.8mil pretax loss in 1H17. Overall, Media Prima posted a core net loss of RM28.7mil in 1H17 against core net profit of RM45.8mil in 1H16. 

“No surprises from Media Prima’s 1H17 results briefing, but the group shared that it is exploring further cost savings initiatives, given the decline in group revenue. 

“For example, it plans to trim down its workforce in order to rationalise the group’s cost structure. To recap, Media Prima carried out a mutual separation scheme in 2014, which effectively reduced the group headcount by about 10%,” it said.
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