Media Prima poised for growth, Star Media to remain resilient

Research house positive on Media Prima’s home shopping and digital media segment, and ongoing cost-optimisation initiatives


MEDIA Prima Bhd is well placed for growth after its final-quarter net income beat analysts’ expectations backed by its ongoing cost-optimisation efforts.

The company’s share price rose by 32.5 sen or 112% year-to-date to a 52-week high of 61.5 sen on Feb 24 from 29 sen at the start of the year. Its shares ended half a sen or 0.91% higher last Friday at 55.5 sen compared to its previous close.

MIDF Amanah Investment Bank Bhd (MIDF Research) has raised its target price (TP) on the media group to 50 sen from 20 sen previously, while maintaining its ‘Neutral’ call.

The research house posits that moving forward, businesses across all Media Prima’s major sectors continue to be cautious on the group’s advertising budget as a way to conserve their cashflow.

“Thus, we remain wary that earnings from the group’s traditional platforms could potentially continue to decline.

“However, we are positive on the prospects of Media Prima’s home shopping and digital media segment, along with ongoing cost-optimisation initiatives made by the group in reducing their overheads,” it said in a recent note.

Additionally, MIDF Research has revised Media Prima’s earnings estimates upwards, factoring in the better than expected financial performance for this quarter, along with the ongoing cost-optimisation initiatives made by the group.

The earnings estimates have been revised to an estimated RM600,000 and RM8.8 million for the financial year 2021 (FY21) and FY22 respectively.

Media Prima posted a net profit of RM18.84 million for the fourth quarter ended Dec 31, 2020 (4Q20), reversing a net loss of RM104.46 million a year ago due to lower operating expenses achieved through its cost-optimisation initiatives.

MIDF Research said the strong quarterly earnings in 4Q20 were supported by growth in the home shopping and digital media segments.

Its home shopping recorded an increase of 33% year-on-year (YoY) and a revenue of RM308.9 million.

“This trend was supported by the shift in consumer spending habits — shifting from physical retail to e-commerce.

“We postulate that the growth would continue in the intermediate-term and contribute a higher portion to the revenue moving forward,” the research house noted.

Its digital media segment contributed to an increase of 39% YoY growth in revenue to RM90.1 million in the quarter.

With businesses shifting digital platforms to increase customer engagement coupled with a rise in digital advertising expenditure, MIDF Research said it foresees this segment to continue its upward trajectory.

Media Prima’s weak advertising revenue continued in 4Q20, in which the group’s advertising revenue declined by 4.1% quarter-on-quarter to RM194.9 million.

“As businesses continued to conserve cash amid uncertainty in the pandemic and the ongoing Movement Control Order 2.0, we do not anticipate significant growth from the Media Prima’s advertising revenue moving forward,” the research house said.

Meanwhile, MIDF Research has also maintained its ‘Neutral’ call on Star Media Group Bhd, revising its TP to 33 sen from 30 sen previously based on a dividend discount model valuation methodology.

The research house estimates a dividend of 20 sen for the group in FY21 with potential turnarounds in the digital segment and advertisement expenditure (adex) revenue.

“The TP is derived from a discount rate of 12% based on sustained uncertainties in the adex environment.

“Nonetheless, we opine that the group will be able to weather challenging business transitions, given the healthy cash balance of more than RM300 million as of FY20,” it noted.

MIDF Research said despite being still incurring losses, the group’s continuous efforts to optimise cost and remain agile could aid the group as the industry contends with pandemic-driven challenges moving forward.

It added that while Star Media reiterated its intention to undertake mergers and acquisitions, there has been no tangible developments.

“As such, given the lack of positive catalysts, we maintain our ‘Neutral’ recommendation on the stock,” it said.

Star Media posted a net loss of RM15.71 million for 4Q20 from a net profit of RM230,000 a year ago, mainly due to lower print revenue and an RM11.98 million impairment of assets.

MIDF Research said this was attributable to the weak adex environment as businesses continued to conserve their cashflow amid uncertainty.

“We note that the group anticipates a potential turnaround in its advertising revenue from the SMG Brand Studio as a one-stop solution for businesses.

“However, we remain wary about the prospects from this development as businesses continue with their cautious stance on advertising budget, in tandem with the soft market conditions,” it added.

Nevertheless, the group’s digital revenue showed a 17% uptick compared to the previous quarter due to business expansion in this segment.

While the growth in digital revenue has been encouraging, the research house noted that it is still insufficient to offset the drop in the revenue from the print segment.