This article first appeared in The Edge Malaysia Weekly on March 14, 2022 - March 20, 2022

IT has been very, very difficult,” acknowledges Media Prima Bhd’s head honcho Rafiq Razali, commenting on the media giant’s journey thus far. The group returned to the black in the latest financial year ended Dec 31, 2021 (FY2021), registering a net profit of RM51.56 million, versus a net loss of RM18.09 million in FY2020.

It also ended five straight years of dividend drought by declaring a 1.5 sen dividend per ordinary share for FY2021 and is sitting on net cash of RM188 million (see “Finding ‘the right balance’ for its RM188 mil net cash” on Page 14).

Media Prima had been bleeding red ink, for the most part, since FY2016, with net losses hitting a record RM669.7 million in FY2017.

The recent FY2021 earnings are the group’s first full-year profit since FY2018, when it returned to the black only to fall back into the red again the following year. Can it stay in the black this time?

In an exclusive interview with The Edge — his first as group managing director — Rafiq says the current positive earnings momentum is sustainable, pointing out that the results today are anchored on operational profit rather than one-off items.

“We have started to see the fruits of our turnaround plan ... We are at the beginning of that journey in that sense.

“The improvement in our performance has come from our advertising revenue coming back and growth in our content sales. We do think these two avenues will continue to grow. We have plans to optimise those variants, which is why I’m quite confident that this momentum is sustainable.

“I’m not saying that we are there yet. There’s obviously more that we can and want to do to take the company forward. But we are in a better position now than when we were declaring losses year on year (y-o-y).”

Rafiq took over the reins as group MD on Oct 1, 2021. Before that, he was group executive director — a position he was appointed to on Feb 18, 2021.

He believes his tenure as CEO of the digital arm of Media Prima, which he joined in 2016, had made his move to the top job less daunting. It gave him time to build rapport with other leaders in the organisation, as they went through hardships together when the group was “not in a strong financial position in the past five years or so”.

Even before the pandemic, the media industry was already facing tough operational challenges because of technological changes. How does Rafiq plan to take Media Prima forward?

“We decided early on that, no matter what, the safety and well-being of our employees are paramount. Business decisions should never ever put our people in harm’s way,” he says.

To provide a safe working environment during the Covid-19 pandemic, Media Prima stepped up as one of the first companies to fund its own vaccination programme. It also mandated bi-weekly testing, installed air purifiers in common areas at its offices and introduced a claimable benefit for self-test kits.

“We’ve done all those things so people can work efficiently and feel safe if they need to come to the office. Some people need to operate in the office. We carry out a hybrid arrangement based on work requirements, but we strongly encourage WFH (working from home) for teams that can,” he says.

Rafiq’s three-pronged strategy is focused on Media Prima’s lifeblood — content — alongside continuous efforts to optimise operations and dive deeper into the digital space.

“We believe that as long as we continue to create content that people want to consume, we’ll have a strong business proposition. We are looking to expand on this further, as we are confident that we have the know-how and a strong team to execute in this area,” he says.

Content is an area in which the group will “double down”, he adds, declining to disclose the investment amount.

Media Prima wants to invest more in building content, including local vernacular content — the group’s bread and butter — as well as reinvestments in studios.

“We are talking to multiple content providers and content strategists to see what makes sense, what can be monetised in the long run and what can generate strong [intellectual property] and good synergies in the long run,” says Rafiq, adding that the group is also looking to reinvest in its systems to be more digital and automated.

Content creation is the third-largest business contributor, registering RM13.93 million in reportable segment profit after tax in FY2021, with the largest — broadcasting — at RM80.44 million, followed by digital media at RM11.96 million. Besides broadcasting and digital media, Media Prima’s five other business segments are out-of-home (OOH), publishing, content creation, home shopping and integrated advertising, with brands such as TV3, New Straits Times, Berita Harian and Fly FM under its belt.

For FY2021, OOH — which involves outdoor advertising such as billboards — was the only business segment in the red, with segmental losses expanding seven times to RM36.23 million, from RM5.17 million a year earlier.

Rafiq explains that this was because the OOH business was worse hit than other platforms because of the Movement Control Order last year.

Big Tree, which is part of its OOH segment, also undertook a rationalisation exercise to review non-performing sites, which resulted in a one-off impairment of fixed assets of RM8.3 million.

“Big Tree will focus on sites with high demand and great demographic profiling to maintain its competitive advantage as a leading OOH advertising solutions provider in Malaysia. We are confident about the recovery in our OOH business as we started to see a rebound in this segment in 4Q2021,” says Rafiq.

Big Tree has 2,877 physical sites and 28 digital sites, equivalent to more than 90 digital screens.

Instead of treating its different business platforms separately, Media Prima now looks at itself in an “integrated manner”, says Rafiq. What matters more today, he stresses, is how the group grows its advertising revenue as a whole.

“We can offer the best advertising solutions ...  Some platforms may benefit more than others at times; then we’ll review it because that is the correct thing to do for the group at large,” he adds.

Media Prima underwent a structural change in April 2020 as it consolidated its advertising functions in different business segments and parked them under an integrated sales segment: Media Prima Omnia.

The move — part of its optimisation strategy — started to bear fruit in FY2021. Despite a tough operating environment for media companies, Media Prima’s revenue increased 8% y-o-y to RM1.1 billion, backed by stronger advertising revenue supported by Media Prima Omnia.

“There are still items that we want to optimise further. From a business process perspective, we can do with more automation and leveraging exciting technology that we have available, which will lead to a lot more efficiencies,” says Rafiq. “There are costs that can be shaved off our operations, so we can focus on what really matters in our operations.”

Declining to state the amount that the group is looking to reduce further, he says it will be “sizeable” but will not involve cutting more jobs.  Media Prima’s headcount had shrunk by 1,904 over five years to 2,332 at end-2020, from 4,236 in December 2015.

On its cost optimisation, Rafiq only lets on that the company has a target. “Some of these things are contractual in nature. There are still a lot of things to do to achieve these goals … It’s not as straightforward. If I mention numbers, it will have an impact on our ability to negotiate ...  So I won’t be doing the organisation right by sharing those kinds of numbers.”

With the ongoing transformation brought about by restructuring exercises, is Media Prima’s DNA changing? “At our core, we are still a media organisation. Our lifeblood — what gets us ticking — is content. If you ask us what is more important, it is to be a strong media or content organisation. I would think our heart beats content because, ultimately, if we continue to produce content that Malaysians want, we will be fine in the long run. It’s how we monetise our content in advertising at this juncture,” he says.

Rafiq believes advertising demand will “rebound”. In the past two years, advertisers had been cautious in their spending simply because local restrictions were in place, he points out.

“We saw this cautiousness or hesitance start to disappear in the fourth quarter last year. Brands want to spend and reinvest in their business and the trend will continue for the year,” he predicts.

Media Prima also wants to grow and invest in the small and medium enterprise (SME) market, which Rafiq says has not been spending in the past two years because of the pandemic. “It will provide us with the opportunity to grow revenue this year.”

He hopes that, in three to five years, the group will be able to cement its position as the premier content producer in Malaysia for news and entertainment.

“We have had our challenges. In times of uncertainty, advertisers do not advertise. It has been challenging. What has happened has allowed us to reflect on our business and look at what is important and what is not … It allowed us to refocus on things that matter. That has helped us focus on what needs to be done, and being able to turn around in a pandemic year is a great achievement!” Rafiq exclaims.

“My hats off to the entire team for making it happen. It’s their hard work that got us to this position and I’m very proud of our achievements last year.

“We started off well in 2022. We know what we need to do … this year to continue on a growth trajectory.”

He is quick to add that this does not mean the group is in the clear but that the team should operate with “a bit of anxiety and paranoia” so that it can improve.

Following its FY2021 results, media analysts seem to be taking a positive stance on the group, upping their target prices for its stock.

In a Feb 24 report, CGS-CIMB Research notes that the group’s “growth story is here to stay, as advertisers seemed to have taken a liking to the bundled media sales solution. The market has underestimated the group’s ability to resuscitate its growth momentum”.

The research house raised its target price to 96 sen, from 92 sen. It also hiked its FY2022/23F earnings per share for Media Prima by between 17% and 33% on better cost management, adding that the stock offered FY2022 to FY2024F yields of 5.4% to 6.5%. “Media Prima today is a different animal from before the change in its controlling shareholder,” it says.

RHB Research also raised its target price for the stock recently, by 41%, to 90 sen, from 64 sen.

“Media Prima’s results trounced expectations, as stronger-than-expected advertising expenditure recovery and operating leverage catapulted earnings. We see scope for earnings enhancement as the economic recovery gathers pace, supported by its much leaner cost base,” it says in a Feb 24 report, noting that downside risks include a change in advertising expenditure sentiment and an economic slowdown.

The shareholding of Media Prima has always piqued the curiosity of many. Previously, its shareholding was linked to the government and political parties.

Today, Media Prima is majority-held by vehicles linked to individuals such as under-the-radar tycoon Tan Sri Syed Mokhtar Albukhary. “Our largest shareholder in this organisation is Aurora Mulia Sdn Bhd, with a 31.9% stake, and which is a vehicle for Tan Sri Syed Mokhtar,” says Rafiq, who says he has never met the tycoon.

As to whether Syed Mokhtar is a very involved or distant shareholder, he replies, “I would say that we operate independently, with guidance from the board. Our mandate is clear — to run a strong profitable business … with good corporate governance. That much is clear,” he says.

“We always continue to have engagement with all our shareholders — institutions, retail or otherwise. And we value their feedback. Our commitment is to all shareholders. In the past, we were recognised for our transparency and governance in these areas as well.”

On the shareholding structure, he says the second-largest shareholder, with a 20% stake, is JAG Capital Sdn Bhd, a fund in which former second finance minister Datuk Seri Johari Abdul Ghani is a director.

Interestingly, JAG Capital has increased its stake in the span of one year to 20%, from just 9.89%, when it emerged as a substantial shareholder of Media Prima on March 9, 2021.

Asked about the degree of Johari’s involvement in Media Prima, Rafiq reiterates, “Like I said, we operate independently. We always get feedback from every shareholder. The mandate is clear — the corporate governance of our organisation has to be strong.”

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