The purchase price of RM156m is expensive, given the lacklustre property market in recent years, says analyst

by ANIS HAZIM / Pic by TMR GRAPHIC

MEDIA Prima Bhd’s operating cost may increase and potentially lead to lower earnings if the company repurchases its headquarters from PNB Development Bhd.

Public Investment Bank Bhd (PublicInvest) analyst Eltricia Foong views the purchase price of RM156.4 million as expensive, given the lacklustre property market in recent years.

Back in 2018, the Bangsar-based property was valued at RM131 million by an independent valuer but was sold to PNB Development for RM118.7 million, a 9.4% discount.

Three years later, the property is being repurchased at RM156.4 million, implying a compounded growth of 6% a year.

The property, also known as Balai Berita, is priced at RM1,030 per sq ft.

“This sale and leaseback arrangement is said to have generated RM10 million savings per annum and allows the group to run as an asset-light company. The proceeds from the disposal were utilised to repay bank borrowings.

“Now, the rationale for this repurchase of the property is to provide long-term security for its operations and invest in new studios to cater to growing content production requirements,” Foong said in a research report yesterday.

As of March 31, 2021, she noted Media Prima has net cash of slightly over RM200 million. Therefore, the proposed acquisition should not be an issue.

Foong said advertising expenditure is expected to be affected in the immediate term due to weaker economic activities caused by the resurgence of Covid-19 cases and a tighter lockdown.

As such, PublicInvest lowered its valuation on Media Prima to forward book value of 0.8 times from one time previously.

The investment bank has maintained its ‘Neutral’ rating on Media Prima but reduced its target price (TP) to 52 sen.

In August 2018, Media Prima sold its Bangsar and Shah Alam properties, and a vacant parcel of land to PNB Development for

RM280 million as part of the group’s cost-cutting measure.

CGS-CIMB Securities Sdn Bhd analysts Kamarul Anwar and Mohd Shanaz Noor Azam stated the higher purchase price consideration could be a sticking point for some shareholders, especially in this Covid-19 era.

They noted, by right, Media Prima could pick up other properties at fire-sale prices.

“Perhaps the group is justifying the premium with intangibles that may not be perceptible to its financials: The Bangsar address, connectivity to various public transport systems for employees’ convenience and the historical value (New Straits Times Press has called Balai Berita home since it left its Singaporean parent in 1973),” the analysts wrote in a report yesterday.

Regardless, they are neutral on the proposed Balai Berita purchase. “The good thing is Media Prima is back to making profit after a strategic shift to diversify its earnings base, and advertisers are again seeing the value in advertising on free-to-air television broadcast,”

Kamarul and Mohd Shanaz said. CGS-CIMB has reiterated its ‘Add’ call for Media Prima with an unchanged TP of 88 sen pegged at 1.5 times calendar year 2020 forecast price-to-book ratio.

The brokerage firm sees Media Prima’s TV broadcasting and content division becoming sought after by advertisers and streaming service providers.

Downside risks to the price target include Mitsubishi UFJ Financial Group Inc selling its Media Prima shares while ad sales plummeting year-on-year.

Anwar and Mohd Shanaz said Media Prima’s net operating cashflow looks healthy, with RM46.7 million generated in the three months up to end-March 2021, from RM14.9 million in the same period last year.

They noted since the lease of Balai Berita is expiring in 2021, there is a likelihood the rent will be higher if it is renewed its tenancy as the rental fee comes to RM720,082 a month or RM8.6 million per annum.

CGS-CIMB views the plans to add more studios at Balai Berita as good for its burgeoning content production division.

Media Prima shares ended unchanged at 44 sen yesterday, valuing the company at RM488.11 million.