KUALA LUMPUR, Malaysia (July 5): According to Hong Long Investment Bank (HLIB) Research, Media Prima Bhd’s repurchase of its headquarters in Bangsar indicates that the company is now more confident in its financial condition and believes that its earnings are now more sustainable. Media Prima stated last Friday (July 2) that it will repurchase Balai Berita Bangsar for RM156.4 million, after selling it to Permodalan Nasional Bhd (PNB) for RM118.7 million in 2018.
An extraordinary general meeting of Media Prima shareholders must still approve the repurchase.
The media conglomerate was intended to evacuate the facility in July of last year as part of a move to streamline its operations, but the plan fell through.
The group’s earnings position is now significantly stronger than it was in the financial year ending December 31, 2017 to 2019 (FY17-19), when it incurred core losses, according to HLIB Research analyst Tan Kai Shuen.
“Aside from that, the company is planning for future expansion by investing in additional studios to expand its content production division. The implied rental savings yield from buying the properties is 5.5 percent (RM720,000 x 12/RM156.4 million), which is greater than the return on cash in this low interest rate environment “Tan stated in a note to investors today, “onment.”
HLIB Research has raised Media Prima from “hold” to “buy,” with a target price (TP) of 61 sen based to a one-time price-to-book multiple.
“We expect Media Prima’s future earnings growth will be aided by its home shopping sector, digital segment, and increased advertising expenditure (adex) sales via its integrated advertising solution OMNIA. Its earnings are now more sustainable, thanks to a lower cost structure, and should be able to weather short-term difficulties “Tan stated.
Media Prima had a net cash position of RM212.3 million as of March 31, 2021. He noted that after the transaction, the company’s net cash position will decline to RM56 million.
CGS-CIMB Research is neutral on the planned acquisition since it believes Media Prima could have found other places in this troubled real estate market to house its growing content business.
“Some stockholders may be put off by the higher purchase price, especially in this Covid-19 moment. Media Prima has the legal right to purchase other properties at fire-sale prices. Perhaps the group is justifying the premium with intangibles that aren’t visible in the numbers: the Bangsar location, connectivity to multiple public transportation systems for the convenience of employees, and historical value “Kamarul Anwar and Mohd Shanaz Noor Azam, analysts at CGS-CIMB, agreed.
“The rental rate for Balai Berita is RM720,082 per month, or RM8.6 million per year. If the lease is extended after it expires in 2021, the rent will almost certainly increase.” While the purchase will relieve the company of its Balai Berita leasing obligations, it is unclear how much of the savings will be reinvested to improve future profits. The depreciation value per year for Balai Berita if depreciated using the straight-line method over 99 years is RM1.6 million.” If Media Prima borrows to finance 40 percent to 100 percent of the acquisition price, the interest cost will range from RM3.1 million to RM7.8 million at a 5% interest rate. After removing the statutory corporation tax rate of 24 percent, the additional costs might range from RM3.6 million to RM7.1 million “”Tens of billions,” they added.
The research firm maintained its “add” call on Balai Berita with an unaltered TP of 88 sen, believing that the net profit increase from purchasing the company would be minor at best.
Although Media Prima’s business operations have improved, according to PublicInvest Research, this repurchase could result in decreased profitability as operational costs rise.
Eltricia Foong, a group analyst, anticipates the group’s adex to be impacted in the short term due to decreased economic activity induced by the rise of Covid-19 instances followed by a tighter lockdown.
“We have decreased our valuation based on a three-year ahead book value of 0.8 times due to this uncertainty (previously 1 times). As a result, our TP has been cut to 52 sen,” she explained, keeping a “neutral” stance “Make a call on the stock of Media Prima.
Media Prima shares were down 0.5 sen or 1.12 percent at 44 sen at noon market closure, giving the company a market capitalization of RM482.62 million. There were 505,400 shares exchanged in total./n
