Another kitchen sinking year expected for Media Prima

KUALA LUMPUR: Media Prima Bhd’s impairment exercise on its 21.4% associate, Malaysian Newsprint Services (MNI), is a negative surprise to financial year 2017 (FY17) earnings forecast, according to CIMB Research.

Media Prima announced that it would undertake an asset impairment exercise on MNI for RM142.4mil due to a challenging operating environment.

“This is a negative surprise to our FY17 earnings forecast for Media Prima, but we think Media Prima could potentially benefit from the removal of MNI’s losses in FY1819F,” CIMB said.

The research house said Media Prima was negatively affected by the weaker performance from MNI due to widening losses from RM6.2mil in FY14 to RM10.1mil in FY16.

It added that as a result of higher losses, Media Prima also reported a declining net carrying value on MNI assets from RM163.mil in FY14 to RM146.4mil in FY16.

CIMB said the impairment exercise on MNI would negatively impact the house’s net profit forecast for FY17.

“Based on our estimate, FY17 net profit forecast will slip into net loss of RM110mil.

“Nevertheless, we think Media Prima could benefit from the removal of MNI’s projected losses in FY18-19F.

“As a result, our FY18-19F forecast could increase by 4-8%. However, we make no changes to our forecast pending the completion of the liquidation,” CIMB said.

Media Prima is expected to announce its 2Q17 results on August 14 and CIMB expected the group to record sequential qoq earnings recovery on the back of improving adex due to an improvement in consumer sentiment ahead of Hari Raya.

“However, we do not think the adex recovery will be sustainable in 2H17. To recap, Media Prima swung into a core net loss of RM38.2mil in 1Q17, partly due to ongoing weakness in adex and higher cost related to digital business initiatives,” the research house said.

CIMB has maintained its “reduce” call on Media Prima and a target price of 70 sen, based on 13x CY18F P/E, a 20% discount to the target market P/E.