Benefits from Media Prima’s digital initiatives seen in 2H19

We are feeling neutral after a meeting with Media Prima Bhd’s management. The group believes its competitive advantage through a wider audience catchment will return it to the black. The group is aiming to leverage its Odyssey strategy for higher contribution from the digital segment to mitigate a declining revenue from traditional media platforms. Losses are expected to be narrowed through various initiatives and a dividend payment seems unlikely at least in the next one to three years. We maintained our earnings forecasts and “hold” call with a TP of 42 sen, pegged at price-to-book value (P/BV) of 0.6 times.

In our view, the main reason for Media Prima’s dwindling share price is its fruitless diversification efforts and being heavily dependent on traditional media revenue. This led Media Prima to incur a high investment in acquisitions and partnerships, embark on cost rationalisation exercises, and a longer gestation period for the digital strategy.

Through Odyssey, Media Prima is aiming to expand its non-advertisement revenue from 20% to 40% and digital revenue from 5% to 20% by 2020. To achieve this, Media Prima is exploiting its media platforms including television, radio, print and outdoor to reach a wider target audience, while Rev Asia will cater for the modern media.

Under Odyssey, Media Prima is aiming for digital to contribute 20% of total revenue. To achieve this, Media Prima believes its traditional media platforms can lift its digital targets — the free-to-air segment’s Tonton can reach a wider audience through the YouTube platform; a traditional newspaper is able to offer online reading through websites and phone apps; and radio to offer new podcast streams. Through digitalisation, the New Straits Times Press’ unique visitors increased to 19 million and through Ripple, Media Prima was able to catch an accurate segmentation enabling customised solutions for advertisers to reach various target audiences.

Having realised the importance of creative content, Media Prima’s in-house content production has worked with over-the-top players — Netflix and Dailymotion — to broadcast Media Prima’s contents. Additionally, its brainchild Ejen Ali is now broadcast to over 45 countries and is very popular in our neighbouring countries.

In our view, Media Prima’s current cost structure is too dense for a company on track towards digitalisation. Media Prima’s overhead cost currently comprises almost 36% of total cost compared with Astro Malaysia Holdings Bhd’s 18%, and we believe Media Prima is targeting to hit a personnel cost below 30% of total expenses. If this materialises, we believe Media Prima is able to channel the savings from the cost rationalisation towards making more creative contents and digitalisation efforts.

As part of its digitalisation efforts, Media Prima recently launched the Big+ (the OOH segment’s Big Tree) focusing on using geotagging and image recognition technologies on its billboards. The technologies will enable consumers, using their smartphones, to swiftly respond to advertisements. The capital expenditure is not disclosed for this initiative; however, we expect a muted contribution from this segment due to the start-up cost.

While management had previously guided for reduced losses in the coming quarters, this tone has changed due to a delay in staff lay-offs and a slower-than-expected advertising expenditure growth despite strong consumer sentiments. In light of this, we anticipate the losses to persist for the rest of financial years 2019 and 2020.

We believe Media Prima is unlikely to disburse a dividend in the next one to three years. Its cash stood at RM257 million as of the third quarter of 2018, declining from RM374 million a year ago. All in, we do not expect dividend yield to be the main attraction for this stock. Despite an acceleration from digital revenue at the top line, we reckon there will not be any significant changes in earnings contributions across all of its media platforms. As such, we are leaving our earnings estimates unchanged for now.

Despite optimism in its digital initiatives, we viewed the slow pace of digital contribution will drag Media Prima’s return to the black as its traditional media contribution is deteriorating rapidly. We will only start seeing rewards from the initiatives in the second half of 2019. Our TP of 42 sen is based on P/BV of 0.6 times, -2 standard deviations below five-year mean. — Hong Leong Investment Bank Research, Feb 11