• D/G to NEUTRAL from Buy, new MYR0.49 TP from MYR0.57, 9% upside. Results fell short on advertising expenditure (adex) underperformance (75% of revenue) with a rebound in the out-of-home (OOH) segment providing some respite. With valuation being slightly ahead of the historical P/BV mean, Media Prima’s risk-reward looks to be balanced. Our TP is pegged to 0.6x FY24F (Jun) P/BV and 11x FY24F EPS with a 2% ESG premium incorporated. For exposure to the media sector, we prefer Astro Malaysia (ASTRO MK, BUY, TP: MYR0.94).

• Falling short. 4Q22 core net profit of MYR12.3m (+41.4% QoQ, -72.4% YoY) included a MYR10.6m pandemic-related rent concession. Stripping this out, core 12M22 earnings came in at MYR42.8m (-39.5% YoY), at 78% of our adjusted 12-month numbers (2022). Note: There is a wide disparity in consensus estimates due to FYE change, which distorts comparison. Key standouts were content sales (+26% in 2022) that buffered the prolonged weakness in home shopping sales (-46%). Meanwhile, the OOH segment turned in a full-year profit – the first since 2019 – with higher traffic flows and footfall. Adex fell 14% YoY in 4Q22, contrary to expectations of a boost from the general elections as advertisers stayed cautious.

• Content sales a bright spot. 12M22 adex was stable (+0.5% YoY), held up by the strong recovery in the OOH segment. Newspaper sales, and newspaper printing and distribution, recorded lower revenues in 2022 by 22-33% while Omnia topline gained 8%. The earnings malaise for the home shopping segment continued (in the red since 4Q21) with inflationary woes and cannibalisation from retail stores.

• 3-year business plan. MPR has embarked on a 3-year business plan with the focus on content boosts, inventory premiumisation, and new revenue streams. Management remains sanguine on the long-term prospects of the home shopping business – WOWSHOP – evolving from being a pure marketplace to working more closely with business owners to promote their products. The group will look to further grow the OOH segment and continue monetising the expanding portfolio of acclaimed content with Tonton – Malaysia’s first home-grown streaming video on demand or SVOD service – to be repositioned as a hub for MPR’s best content.

• Forecast and rating downgraded. Following the earnings miss, we drop FY23F (18 months)-25F core earnings by 16-21%. This factors in the pallid adex performance and our more conservative view on margins. While we laud the group’s second consecutive year of profitability, challenges on the economic front are pitfalls in our view – this could side-line its transformation initiatives and adex prospects. With valuation being slightly ahead of the historical P/BV mean, MPR’s risk-reward looks to be balanced. Upside risks to our call are stronger-than-expected advertising spend and a turnaround in the home shopping segment. The opposite of these factors represent the downside risks.

Source: RHB Research - 23 Feb 2023