Media Prima’s 1HFY24 core net profit of RM11.1m was disappointing, coming in at only 34% and 35% of full-year forecast and the full-year consensus estimate, respectively. The underperformance versus forecast was largely attributed to lower-than-expected adex at the publishing segment said broking house MIDF.
Core profit excluded lumpy exceptional items including provision for litigation claims, and partial extinguishment of lease liabilities from rent concessions. YTD, revenue plunged due to adex contraction and costs pressure. YTD revenue slipped by 11% mainly due to weakness in adex, sale of home shopping goods and content sales. As a result of this, and coupled with higher opex, core net profit declined by a larger degree.
Hence, this more than negated the recovery in publishing profits and narrowed losses at the home shopping segment.
QoQ recovery on rejuvenated adex. Sequential revenue recovered slightly by 5% in tandem with the rebound in adex for digital media, broadcasting (TV and radio) and out-of-home segments. This corresponds with Nielson data that revealed an expansion in adex for Media Prima’s TV channels in 4QCY23. Whereas for OOH, it was buoyed by improved demand for both static and digital assets. Hence, the above more than compensated for weaker content distribution revenues and lower newspaper adex.
The expansion in topline flowed through to bottom line that also received a boost from lower depreciation and net finance costs. Hence, this led to the more than 6-fold recovery in core net profit. Stiff competition from digital media. We believe that it will be challenging for its traditional channels (i.e. TV, radio and newspapers) to regain adex share lost to new media (i.e. streaming apps, social media and websites). This is on the back of proliferation of digital content creators due to low barriers of entry, structural shift in interest to short video formats and live-stream sales on digital platforms, and application of artificial intelligence technology in digital media to curate personalized content and commercials.
Therefore, MEDIA’s niche will likely be limited to audiences that seek high quality local vernacular content. The house moderates its FY24F-25F earnings by 7% each to reflect lower publishing adex.
Correspondingly, it has also lower its TP by 8% to RM0.34 based on unchanged 10x FY25F PER. The valuation implies a discount to the average historical forward PER of traditional media players (11x). This reflects expectations of sustained market share erosion for MEDIA due to intense competition from digital media. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.
The house remains cautious on MEDIA due to sustained erosion of viewership and market share of adex from new digital media, high fixed costs base amidst topline pressure, and sustained drag from the home shopping segment. Maintain UNDERPERFORM.
