Investment Highlights

• We maintain our NEUTRAL recommendation on the media sector for the next 12 months. Prospects remain muted as the sector continues to be weighed down by: (i) the worsening performance of traditional media i.e. print, TV and radio segments amid the structural shift to digital; (ii) declining print circulation; (iii) the lacklustre adex environment due to a lack of major catalysts; and (iv) growth in digital revenues and non-adex segments still unable to offset the decline in traditional media. However, cheap valuations of traditional media companies after the collapse in share prices make them viable targets for M&A and privatization activities.

• Traditional adex on the decline as consumer sentiment falters: In end-July 2019, Nielsen Media Research introduced the measurement of digital adex with data starting from January 2019. For 9MCY19, digital adex contributed 13% of the total adex market. On a YoY basis, traditional media segments such as free-to-air (FTA) television, newspaper, radio and magazine adex declined by 13%, 18%, 3% and 19% YoY respectively due to a structural shift towards digital content. Traditional adex remains the lion’s share of the adex market when compared to digital adex. Meanwhile, 3QCY19 also saw muted consumer sentiment as the Malaysian Institute of Economic Research’s (MIER) Consumer Sentiment Index fell to 84.0 in 3QCY19, the lowest reading since 4QCY17 as weak job outlook weighs on income expectations with consumers limiting shopping plans due to flagging purchasing power.

• 2020 adex outlook: We are cautiously optimistic on the Malaysian adex market as events such as the UEFA Euro 2020 and the 2020 Summer Olympics, which will be held on 2HCY20, and a potential recovery in consumer sentiment for the year could boost adex revenues slightly.

• Newspaper circulation continues to dwindle: Major publishers such as Star Media and Media Chinese had decided to withdraw their membership from the Audit Bureau of Circulations (ABC) Malaysia resulting in their publications The Star, Sin Chew, Guang Ming and China Press being excluded in the ABC’s audited circulation figures from January 2019 onwards. Utusan Group’s publications Utusan Malaysia and Kosmo! as well as their respective weekend versions were also excluded, given the group’s cessation of operations in October 2019. After excluding the above publications, total newspaper circulation is still declining across the board in 1HCY19, falling 13% year-on-year and 6% half-on-half.

• Analogue switch-off (ASO) completed: The ASO was completed on 30 October 2019, marking Malaysia’s full transition to digital TV broadcast after being done in phases beginning 30 September 2019 and ending in East Malaysia. MYTV has been distributing 2mil free decoders to eligible B40 households nationwide, with more than 1.5mil have been distributed to Bantuan Sara Hidup Rakyat (BSHR) recipients as at 14 October 2019. We are neutral on the development although media players with content on FTA channels might see the benefit of MYTV’s MyFreeView initiative as the 15 channels offer better audio and video quality. For example, Media Prima’s TV3, NTV7, 8TV, TV9 (which command 35.2% of total audience share) and their CJ Wow Shop channels were offered on MyFreeView.

• Growing digital revenues but still a small portion of the pie: Media players have reported encouraging growth in their digital revenues. However, contribution to total revenue is still in the single digit i.e. Media Prima’s digital segment is 4% of its group revenue for 9MFY19 (YTD RM35mil) while Media Chinese’s digital contribution is reportedly around 8%. Meanwhile, we gather that Facebook and Google still hold the bulk of the digital adex market.

• Implementation of digital service tax (DST): The 6% tax effective 1 January 2020 might benefit media companies with TV and over-the-top (OTT) segments such as Media Prima and Star Media. However, the extent to which local players might benefit is still unknown as higher prices alone might not deter consumers from consuming the content provided by foreign OTT players such as Netflix. This is due to differing preferences for content where consumers might choose a mix of local services for vernacular content and foreign services for Hollywood content.

• Potential changes in sector rating: We may upgrade the sector to OVERWEIGHT if: (i) consumer confidence is restored and translates to higher ad-spend across all mediums; (ii) digital initiatives begin to gain traction and outgrow the decline in traditional media revenues; and (iii) the possible privatization and/or M&A opportunities. On the other hand, we may downgrade the sector to UNDERWEIGHT if: (i) intense competition in the digital space continues to weigh on the monetization of digital platforms, (ii) longer-than-expected gestation of digital initiatives coupled with worse-thanexpected decline in traditional revenue streams impacting companies’ performance, and (iii) significant deterioration in industry adex

Source: AmInvest Research - 31 Dec 2019