Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Wed, 21 Aug 2019, 9:50 AM


Media - Still in A Mix

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Persistently challenging prospect amid soft adex outlook coupled with disruptive new technologies will continue to reshape the media industry. The recent M&A transaction in Utusan Melayu could set a new floor price to the incumbents. Any active enforcement on the anti-piracy issue will be positive to the sector. There are no changes to our media companies’ earnings estimate. ASTRO (OP, TP: RM2.00) is our preferred pick for the sector due to its relatively resilient earnings and attractive dividend yield. We maintain our UP call and target price on MEDIA (UP, TP: RM0.300), and STAR (TP: RM0.600) but raised MEDIAC’s rating to MP with an unchanged TP of RM0.230. Maintain NEUTRAL.

Remained lackluster. The sector incumbents’ report cards for 4QCY18 remained uninspiring, mainly due to the prolonged weak advertising revenue as a result of subdued adex outlook on a slower economy and policies’ uncertainties.

Although STAR’s FY18 results came in above our expectations (due to higher-thanexpected print and event segments’ turnovers as compared to our overly conservative estimate), its bread-and-butter print and digital segment continued to face challenges with diminishing ads revenue. MEDIA’s 4Q18 results, meanwhile, came in below, owing to higher-than-expected overhead cost. Despite the group managing to improve its financial performance significantly as compared to a year ago, it still suffered a whopping LATAMI of RM107m in FY18 as a result of tepid turnover and higher OPEX. Meanwhile, despite a strong travel segment’s contribution sustaining MEDIAC’s 9M19 earnings, its momentum, however, had slowed down in 3Q, which will likely continue in the remaining quarter due to the slow travel season as well as the prolonged cautious mode adopted by advertisers.

ASTRO, meanwhile, reported a decent report card for 4Q19, lifted by higher contribution from its home-shopping segment. Moving forward, ASTRO is set to deepen its value proposition for customers across multiple platforms with revenue diversification, deeper cost optimisation as well as anti-piracy push to be its key focus in FY20.

Adex outlook likely to remain subdued. Despite the year 2018 being an eventful year as a result of the numerous sport events, the overall gross ads spend did not perform well and dipped by 9.4% YoY (to RM5.8b), no thanks to the weak newspaper, radio magazines and in-store segments. Moving into CY19, with no key sport event in place coupled with persistence digital disruption, we expect the traditional adex to remain uninspiring and to shrink 4.5% YoY.

A new floor price. There has been no solid follow-up since the authority’s comments to review the stakes held by political parties in media companies to 10% in last September. While we understand the government’s intention is to enhance press freedom and media independence for the country, the implementation of the proposed ruling is easier said than done given that valuations could be a major hurdle. Having said that, the recent M&A transaction in Utusan Melayu Bhd’s (which published the Utusan Malaysia Malay-language daily) has set a base to the valuation given that 31.6% equity stake had changed hand at 19.0 sen per share (or implied c.0.4x P/NTA) in February. Thus, we believe, should there be any share disposal (to comply with the stake-limit ruling) of the media companies under our coverage, the valuation is likely to be valued at the premium as their financial positions are much healthier than Utusan, which currently is still loss-making. All in, we believe Putrajaya may likely provide the incumbents reasonable time frame to seek for new investors, if any, as well as to allow for exemption subject to the authority’s approvals.

Fighting digital piracy. Putrajaya has recently mulls unified anti-piracy fight to block public access to websites that stream content illegally. While the intentions are positive to the local content industry players, sustainable and continuous efforts as well as active enforcement would need to be in place in order to fight digital piracy in the country. Thus far, we have yet to observe any solid development from the authority, thus, the concerns on content piracy will likely to continue to cloud the industry’s prospect, at least over the short-to-medium term. Nevertheless, should there be any new efforts and active enforcement on the anti-piracy issue, ASTRO would be the key beneficiary.

Hiccup in the DTT project. Recent press has reported the target to complete the digital terrestrial television (DTT) rollout has been delayed to 3Q19 (vs. 1Q19 early), which we believe could be partially due to the recent contract dispute between MYTV Broadcasting and Green Packet. The deferment came in no surprise to us but is negative to the TV operators’ prospect as well as the development of the country’s telecommunication sector given the current 700MHz broadcasting frequency spectrum is set to be freed up (post the DTT rollout) for telecommunication purpose.

Sector’s call maintained at NEUTRAL. All in, we expect the sector’s prospect to remain uninspiring amid the soft adex outlook (no thanks to the lack of adex-friendly events) coupled with new technologies that continue to reshape the media industry. Advertisers will likely continue to remain subdued towards the traditional media type (i.e. TV and Print) while seeking new opportunity in the digital media. We made no changes to all our media companies’ earnings forecasts.

ASTRO (OP, TP at RM2.00) is our preferred pick for the sector due to its relatively resilient earnings (underpinned by its growing digital adex coupled with rising home shopping segment contribution) and attractive dividend yield of more than 7%. We are keeping our pessimistic view unchanged on MEDIA (UP, TP: RM0.300) and STAR (UP, TP: RM0.600). Maintained our MEDIAC’s TP at RM0.230 but raised the rating to MP (vs. UP previously) as the share price is trading closed to our TP.

Source: Kenanga Research - 5 Apr 2019

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