Maintain sell with an unchanged target price (TP) of 31 sen: We had a meeting with management last week and walked away feeling less sanguine. Below are the key meeting takeaways.
Home shopping’s results have been encouraging as the division benefitted from a double-digit year-on-year revenue growth. With the narrowing losses, the group is hopeful that the division will break even in FY19. However, we think that TV shopping will eventually follow the path of print, as it is competing with online retails as broadband services proliferate.
The management is eyeing more acquisitions to grow its digital segment. They are looking at small acquisitions, like the recent purchase of 52% stake in Vocket, which was settled with a cash consideration of RM2.5 million. However, we think that the digital division will take some time to show significant contribution as it is competing with the multinational media companies like Facebook and Google.
Media Prima will be carrying out several major rationalisation activities this year, which include (i) ceasing of the printing plant in Prai, Penang by September, and (ii) disposing of certain properties. We note that the group has several lucrative parcels of land that, if unlocked, will result in cost savings and one-off disposal gain.
Newspaper circulation has weakened since 2012, and we do not expect this to improve in future. As newsprint sales continue to fall, there is talks among the newsprint community (which include Star and Media Chinese) on centralising production. This would improve production efficiencies (in other words logistics, machineries, and materials) and reduce wastage.
Newspapers are now exempt from the sales and services tax (SST). Previously, it was exempt from the goods and services tax. Moving forward, there will be a 6% service charge on advertising expenditure (adex), which will be passed to Media Prima’s clients. Hence the reimplementation of SST is a non-event to Media Prima.
We are expecting the group to announce a slightly stronger 2Q, due to improved adex driven by several events, which include the GE14, the World Cup and Hari Raya. The management guided that it is hopeful for 3Q banking on a Merdeka campaign. However, we opine that traditional adex will remain soft this year. — Hong Leong Investment Bank Research, July 23