Investment Highlights

• The digital service tax, effective from 1 January 2020, has been set at a fixed rate of 6% per annum with the annual threshold of RM500K, following the passing of the Service Tax (Amendment) 2019 Bill in the Dewan Rakyat.

• Under the Bill, tax defaulters may be fined up to RM50,000 and/or imprisoned for up to 3 years upon conviction.

• Definitions of foreign service providers and digital services under the Bill:

A foreign service provider is a person outside Malaysia providing digital service to a consumer and includes any person operating an online platform for buying and selling goods or providing services (whether or not such person provides any digital service)

A digital service is defined by service delivered or subscribed over the internet and other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service is essentially automated.

• Aimed at levelling the playing field between local and international online service providers, the digital tax might benefit media companies with TV and over-the-top (OTT) segments such as Astro, Media Prima and Star Media as competition from OTT players such as Netlfix has pressured subscription revenue and average revenue per user (ARPU).

• However, we are cautiously optimistic on this development as it still remains to be seen the extent to which the tax will benefit local players as according to Deputy Finance Minister Datuk Amiruddin Hamzah, Malaysia’s digital tax rate sits lower compared with rates in New Zealand, Russia and Norway at 15%, 18% and 25% respectively. Furthermore, pricing alone might not deter customers from choosing preferred content provided by foreign OTT players.
• We maintain our NEUTRAL stance on the media sector due its unexciting prospects amid a challenging operating environment following the structural shift from traditional media to digital platforms, coupled with the challenging monetization of digital initiatives and a subdued adex outlook for 2019.
• We maintain our recommendations and fair values on the respective media companies under our coverage as follows: Media Prima (HOLD, RM0.42), Media Chinese (HOLD, RM0.24), Star Media (HOLD, RM0.73) and our top pick for the sector is Astro Malaysia (HOLD, RM1.69) amid its positive prospects arising from its focus on vernacular content and TV household penetration rate of 77% in FY19, although we believe it is fairly valued at the current price.

Source: AmInvest Research - 9 Apr 2019