Sunday, 14 February 2021


This stock doesn't get discussed often. The company hasn't announced flashy ventures. Shockingly, it hasn't even made plans to go into glove manufacturing or vaccine distribution. How dare they.

And yet MEDIA is up by more than 100% in three months, and last week it closed near a one-year high of 35.5 sen. Why?

It's tempting to dismiss it as a speculative play on a penny stock, but the share price rally reflects the company’s own slow and painful business turnaround. There is a fundamentals backed justification for this.

Research houses are of mixed views on the stock. CGS-CIMB curiously has a 61 sen target price, compared to 26 sen by Hong Leong and 21 sen by Public Bank.

Urbanites and those with Netflix subscriptions may feel that society has outgrown the need for TV3. In a similar vein, few read the New Straits Times anymore, unless if a copy is on the table while you’re waiting to get your teeth drilled by the dentist.

Media companies in general have struggled to adapt with the times. Their legacy businesses which used to be prime cash cows – ads sold for print and TV in particular – are facing a real threat of irrelevance. 

STAR tried to enter the streaming game, and it has little to show for it in terms of earnings after five years. Instead of being a saviour, the venture has caused STAR's future to dim some.

Share price performance comparison among public listed media companies, daily chart since November 2020

Companies under pressure rarely have the luxury of undertaking new, flashy ventures. They need to focus on what they have. For a sustainable turnaround story, it always comes down to cutting unnecessary spending, and growing sales.

In the heydays when they were majority owned by UMNO, MEDIA was already talking about cutting costs. But these were half-hearted attempts as they were still hoping that the advertising revenue will bounce back. Anybody in print media has been there, done that, faced disappointment.

MEDIA took its time in rationalising costs, as during the good times it somehow managed to grow its staff to 4,000 people. Slashing a bloated workforce is frowned upon during good times, and unthinkable during bad times. It would be like sacking civil servants.

But of course, things ended up really bad. All around them, media peers faced huge losses. Utusan Malaysia folded. Malay Mail quit printing copies in 2018. Smaller publications simply cut the bulk of their editorial team and tutup kedai. Things were never going to be the same.

And then Syed Mokhtar arrived in 2019 and bought MEDIA shares at 60 sen apiece. He is not known for messing around, and he obviously wants some sweet ROI.

After installing a new management team, one of MEDIA's first rehabilitation acts was to slash its headcount by around 1,400, or over a third.
Based on MEDIA's FY18 average staff cost of RM98,031.31, the total cost reduction comes to RM138.03 million. That’s nearly one fifth of total fixed costs for FY18. During the same year, before the entry of the big boss, they also managed to sell assets worth more than RM300 million. 

These are part of the groundwork laid more than two years ago to support MEDIA's turnaround. Remember that it was a post-GE14 environment. Media companies were essentially shunned and dismissed (we shared similar views) due to their past/present political associations and the obsolescence of the old media business model.

MEDIA weekly chart, since 2018

But fast forward a bit, and the rewards for making those tough decisions have borne fruit.
The company even managed to get back into the black in 3Q20 following its two-phase retrenchment exercise. Sales are finally outpacing expenditure.

The source of that sales growth? 

The home-shopping segment, under the brand CJ WOW SHOP, was instrumental in the turnaround since 2018. Unlike traditional print, its business model is new media for the new economy. It takes the monetisation of TV content to a whole new level.
It's relatively low cost, and a high volumes mover. Endlessly engaging. And if you disagree with that, check out the numbers.
The segment turned profitable suddenly when the pandemic hit. Just like Shopee or Lazada sales, this was another avenue where purchasing behaviour shifted from retail stores. Note that CJ WOW SHOP's revenues for the first nine months of 2020 have already covered the entirety of FY19.
Source : MEDIA company filings on Bursa Malaysia
With MEDIA having bought the remaining 49% stake in its home-shopping segment, more profits will be recognised from 4Q20 onwards. They are announcing earnings by the end of this month, by the way.

On the other hand, it still needs to deal with the traditional advertising business. This market as a whole is evidently in decline; the one that is on the short end of the stick is the newspapers, as fewer and fewer people are picking up the physical paper to get their news. 
There's less interest in long-form articles. The preference now is towards short digestible bits, as opposed to a two-pager wall of words. Call it a generational divide, but consumption trends change, and media companies have no choice but to follow suit.

The malleability of TV content, and its interactivity, still makes it a prime avenue for ad spending compared to print.

Advertisers, many of whom are on stretched budgets, will have to be mindful of their allocations. Since ad slots for digital mediums cost much less than the traditional ones, they will have little left to advertise on TV.

However, the average time spent per day watching free-to-air TV has remained steady at 2 hours over the past decade. There are still plenty in the suburban and the rural areas (the mass market) that get their TV fix from FTA broadcasts.

There is a glimmer of hope that TV’s ad spend will recover once the Covid-19 situation is contained. In fact, in the first two months of 2020, MEDIA ‘s flagship channel TV3 had an encouraging 11.5% year-on-year growth in ad sales, according to Nielsen Malaysia data.

The profitability of the home shopping format proves that there’s a captive TV audience. Ads are run during home shopping programs, and during the breaks. People actually watch these things.
As the appetite for ad spending returns, advertisers will get wise to this and understand its inherent appeal. Any hint of a turnaround there, and it’s a further earnings booster for MEDIA. The hard parts - the cost-cutting, asset sales, replacing management - are almost over.

But back to Syed Mokhtar for now. His cost of investment was 60 sen per share. MEDIA’s book value per share was 50.3 sen based on the latest quarterly earnings.

The current share price trajectory is not too difficult to explain. Forget the market’s incessant obsession with speculative newsflows and the chase for the new glovemaker or vaccine distributor.
Just look at the fundamentals for once.