MEDIA's 1QFY25 results missed expectations, posting a loss due to weak advertising revenue and persistent high costs during a seasonally slow quarter. We cut our FY24F/25F earnings to RM12.3m/RM15.2m (from RM32.1m/RM38.5m), lowered our TP to RM0.46 (from RM0.51), and downgrade our call to MARKET PERFORM (from OUTPERFORM). Given persistently intense competition from digital media, and coupled with its 12-month return of 14%, we believe MEDIA is fairly valued at this juncture.

Slipped into the red. 1QFY25 results disappointed, with a core net loss of RM900k, against our full-year forecast of RM36.1m, and the full-year consensus estimate of RM32.1m. The disappointment versus our forecast stemmed from lower-than-expected adex.

Sharp adex decline amplified by seasonal weakness. In 1QFY25, topline contracted by 9% YoY, primarily due to a broad-based decline in adex (-8.3% YoY) across all platforms, except for digital media and audio broadcasting. The weakness was exacerbated by an 80.1% YoY plunge in content sales, which outweighed improved contribution from higher newspaper circulation.

The combination of higher opex and topline under pressure resulted in YoY profit contraction across all segments, except for the home shopping segment, where losses more than halved YoY.

Competition remains feverish. According to Nielson data, 1QFY25 adex for MEDIA's major newspapers and TV channels contracted by an estimated 7.4% YoY and 3.5% YoY, respectively. This was largely aligned with MEDIA's actual adex decline of 8.3% YoY for all its platforms, including Out-of-Home (OOH) and radio. We believe the weakness may be attributed to intense competition from key opinion leaders (KOL), digital media (e.g. streaming websites and apps) and social media platforms.

Sequential relief ahead. Looking ahead, we anticipate that consumer boycotts of major international brands resulting from the Gaza conflict will continue to ease. Hence, MEDIA's revenue could receive a boost from both the recovery of adex from large clients and its successful efforts to secure SME customers. Additionally, we are optimistic of a sequential rebound in adex in 2QFY25 as advertisers bump up marketing spend in anticipation of the festive year-end holidays in 2QFY25.

Forecasts. We cut our FY25F and FY26F earnings to RM12.3m and RM15.2m, respectively (from RM32.1, and RM38.5m), as we lower our adex assumptions.

Valuation. We revise our valuation methodology to 1.6x FY25F P/NTA (from 15.8x FY25F PER), as we believe this approach better reflects MEDIA's quarterly earnings volatility and uncertain profit visibility. Our valuation reflects a 0.8x premium over the peer average of 0.8x, to account for MEDIA's integrated media platforms, dominant market position, and larger market capitalization. As a result, we cut our TP to RM0.46 (from RM0.51). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We like MEDIA on account of: (i) its entrenched market leadership in the TV, OOH and radio segments, (ii) its position as the leading digital publisher in Malaysia with 9.1m monthly total unique visitors on multi-platforms, and (iii) its dominant market share of 54% in the Malaysian TV space with leading overall audience share of 67% (Chinese) and 46% (Malay).

However, given intense platforms competition, and coupled with its 12-month return of 14%, we believe MEDIA is fairly valued at this juncture. Hence, we downgrade our call to MARKET PERFORM (from OUTPERFORM).

Key risks to our call include: (i) accelerated obsolescence of traditional media due to intense competition with digital and social media, (ii) inflated newsprint cost, (iii) sustained and widened losses at the home shopping segment.

Source: Kenanga Research - 28 Nov 2024