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StockStalk  |  JANUARY 21, 2016 11:30PM

Media Prima: Will home shopping pay off in the end?

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StockStalk instory imageOn Jan 18, Media Prima announced it is partnering South Korea’s CJ O Shopping Co to establish a home shopping business via the former’s wholly-owned subsidiary Sistem Televisyen Malaysia Bhd. Analysts are positive on the venture, but is home shopping the way forward for the media giant?

Business model: The Kuala Lumpur-based Media Prima Bhd is the country’s largest media group, with a market capitalisation of RM1.5 billion at the time of writing. It was incorporated in 2003 and is listed on the Main Market of Bursa Malaysia.

The group owns a 98% stake in New Straits Times Press (M) Sdn Bhd, which publishes New Straits Times, Berita Harian and Harian Metro. According to its profile on Bursamarketplace.com, it also operates four free-to-air television stations, including TV3, 8TV, ntv7, and TV9; radio broadcasting services through operating three radio stations comprising Fly FM, Hot FM, and one FM; and online services through operating tonton.com.my, a video portal, as well as gua.com.my, a lifestyle portal.

Media Prima is also an outdoor advertising player; it owns Big Tree Outdoor, UPD, The Right Channel, Kurnia Outdoor and Jupiter Outdoor Network. It also owns Primeworks Studios Sdn Bhd, the largest production company in Malaysia.

On Jan 18, Media Prima entered into a joint-venture (JV) partnership with South Korea-based CJ O Shopping Co (CJO) to establish a home shopping business. Media Prima will own a 51% stake in the JV company, while CJO will hold the remaining 49%. According to media reports, Media Prima could invest up to RM33.2 million in the JV.

Shareholder and management: Media Prima’s four major shareholders are the Employees Provident Fund (13.9%), Amanah Raya (11.1%), Altima Inc (8%) and Skim Amanah Saham (4.9%).

Sixty-year-old Johan Jaaffar is independent non-executive chairman of Media Prima and has been a board member since 2009. He is also chairman of the following subsidiaries of the group: Sistem Televisyen Malaysia Bhd, Synchrosound Studio Sdn Bhd, One FM Radio Sdn Bhd, Big Tree Outdoor Sdn Bhd and Alt Media Sdn Bhd.

In the past, he was chairman of Dewan Bahasa dan Pustaka and before that, group chief editor of Utusan Melayu (M) Bhd for six years until 1998.

Amrin Awaluddin is group managing director of Media Prima and was appointed to the board in September 2009. He has held various positions in the group, including that of chief financial officer prior to his appointment as group managing director. Before joining the group, Amrin was with Amanah Merchant Bank Bhd, Renong Bhd, Malaysia Resources Corp Bhd and Putera Capital Bhd.

Media Prima Berhad 1-year price chart 210116 01Share performance: Media Prima’s share price has been on a decline over the past year, yielding a one-year return of -16.40% as of Jan 21. The stock’s 52-week trading range is between RM1.04 and RM1.96.

Trading in the stock has also been rather volatile, compared to its peers on Bursa Malaysia. According to data from Reuters, it has a beta coefficient of 1.77, which makes trading in the stock more volatile than market average. (Note: A beta coefficient of 1 and above denotes high trading volatility.)

According to MIDF Research, Media Prima has a dividend payout policy of 60% to 80% of its earnings.

What analysts think: Analysts tracked by KINIBIZ appeared relatively optimistic about Media Prima’s prospects concerning its new JV. MIDF Research, which has a “buy” rating on the company, said in a note dated Jan 19 that compared to its peers, Media Prima has managed to perform considerably well in difficult times through various cost-cutting exercises such as production cost savings and a mutual separation scheme (MSS).

“This is seen in the improvement of earnings before interest, tax, depreciation and amortisation margin in its recent quarterly earnings announcements. Moreover, we view that its strong balance sheet will support the group’s ability to distribute dividends. The current share price level provides a good opportunity for investors to increase exposure in the stock,” the research house added.

AmResearch, which also has a “buy” call on Media Prima, said in a note also on Jan 19: “We view this move positively as it provides Media Prima with a new source of income while also reducing its high dependence on advertising revenue of circa 80%.”

It noted also that Media Prima’s entry into home shopping comes on the heels of pay-TV competitor Astro’s successful venture into the home shopping business launched in early 2015.

“Given Media Prima’s capabilities in the free-to-air TV space, CJ O’s expansion track record, as well as proven market acceptance of Korean ‘Shoppertainment’ in Malaysia, the JV seems likely to be able to scale its business quickly across Media Prima’s broad viewership.

“However, we are unable to confirm whether there will be a dedicated channel allocated for the purpose of this new business,” said AmResearch.

CIMB Research, meanwhile, maintained its “hold” rating on the stock following the JV announcement. “We expect improvements in operating efficiencies following the company’s cost-saving initiatives and better traction from non-traditional platforms such as radio and outdoor. While the stock offers an attractive financial year (2016) dividend yield of 5.9%, we prefer Astro for exposure to the media sector.”

HLIB Research, which maintained a “hold” rating on Media Prima, commented on the JV: “Following the footsteps of its competitor (Astro), we regard this e-commerce JV as a good diversification by Media Prima in order to cut down its reliance on the traditional advertising expenditure (adex) platform. With its strong free-to-air TV position in Malaysia, we believe the group will be able to reap additional income from this venture.

Analyst-calls-Media-Prima-Bhd-210116-01“Nevertheless, we expect some challenges ahead due to competition from Astro Go Shop and negative perception resulting from its previous home shopping business ‘Smart Shop’.”

It added: “Although we like Media Prima for its integrated media business and its monopoly position in the free-to-air segment, we expect sluggish adex growth, considering the impact of the goods and services tax on consumer spending, to limit profitability growth.”

Earnings forecast:

Earnings-forecast-for-Media-Prima-Berhad-210116-01

StockStalk: We are positive about the fact that Media Prima is diversifying its business by venturing into home shopping and to reduce dependency on adex. However, we are concerned about weak adex growth this year and the threat of Astro’s home shopping business, which are somewhat worrying.

Another concern is slowing consumer spending due to the current economic environment, which could affect Media Prima’s new home shopping business.

However, as we have mentioned in this column before, if investors are patient, they will find that they will enjoy decent dividends from the company. And if investors are new to the stock, they may find it a cheap entry to the media sector. The key is to remain invested with a long-term view, as the current volatile environment is not conducive for a short-term investing strategy in our opinion.

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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.



 
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