News industry consolidation could be seen in Media Prima

Media Prima Bhd (Oct 10, 40.5 sen) Maintain reduce with an unchanged target price of 38 sen: Aurora Mulia (unlisted), a company owned by billionaire Tan Sri Syed Mokhtar Albukhary and the largest shareholder of Media Prima Bhd, has bought a 70% stake in Dilof Sdn Bhd (unlisted), according to a statement on Oct 7 by the seller Utusan Melayu (Malaysia) Bhd (unlisted). The significance of this purchase is that Dilof holds the publishing permits for the Utusan Malaysia newspaper and its tabloid sister, Kosmo!

Utusan said Aurora Mulia bought Dilof to ensure the continuity of the two newspapers. On the morning of Oct 9, Utusan executive chairman Datuk Abd Aziz Sheikh Fadzir informed staff via an internal memo that the board had decided to voluntarily liquidate the company. All employees were told to surrender the company’s properties by 1pm. An unusual statement builds up expectation of a consolidation.

One line that stood out in Utusan’s Oct 7 statement was the one explaining that Aurora Mulia had been chosen as the buyer because it is the major shareholder of Media Prima. Utusan also said that Aurora Mulia’s takeover of the publishing permits would see the consolidation of support departments, such as printing, distribution and advertising, for the publication of “several major newspaper brands in the country”.

Naturally, this roused the market’s curiosity on whether Syed Mokhtar is concocting something that would involve both Utusan and Media Prima. To note, Syed Mokhtar had previously made use of Utusan’s facility to print the physical newspapers of another publication owned by him, The Malaysian Reserve, according to sources quoted in a July 8-14 report by The Edge Malaysia weekly.

Media Prima’s print businesses are parked under its 98.2%-owned subsidiary The New Straits Times Press (Malaysia) (NSTP)(unlisted). The unit owns three news brands: i) the New Straits Times; ii) Berita Harian; and iii) Harian Metro.

If Syed Mokhtar decides to consolidate his news operations, we can think of three ways he could do so: i) form a new holding company to house all of the news titles, which results in NSTP being extricated from the integrated media group (best-case scenario); ii) park all of his publishing businesses under NSTP (worst-case scenario); or iii) keep the newspaper companies separate, as they are now, but all sharing common back-end facilities (neutral development).

However, even the best-case scenario is not exactly the most ideal for Media Prima. Although NSTP has been Media Prima’s biggest headache, the group still has an unprofitable TV division to deal with, going forward. We are not convinced that Media Prima’s years-long cost-cutting exercise will nurse it back to financial health. In fact, further cost-cutting could even compromise its operations and content quality.

We estimate that the share of NSTP in Media Prima’s book value as at end-June 2019 came to RM284.2 million, or 25.6 sen per share. — CGS-CIMB Research, Oct 9

Source: TheEdgeMarkets