Investment Highlights

• We upgrade our recommendation on the media sector from NEUTRAL to OVERWEIGHT as we are optimistic of adex recovery in 2021 amid adex events such as UEFA Euro 2020, Premier League, the NBA and others and as traditional media and travel segments are expected to show gradual recovery following the rollout of Covid-19 vaccines in Malaysia and in other countries which could lead to recovery in sentiments as pandemic restrictions continue to ease. Since Covid- 19 hit Malaysia in 1QCY20 last year, weak adex sentiment and pandemic-related restrictions had impacted the performance of traditional media adex such as in print, TV, and radio, while circulation numbers continued to dwindle. Furthermore, offline events, travel and content production were also impacted by Covid-19 restrictions. However, segments such as home shopping and digital saw positive performance as the movement control order (MCO) witnessed shifts in consumer habits. We gather that momentum in home shopping and digital is expected to continue, with the growing trend towards electronic and mobile commerce (ECMC) platforms. Our OVERWEIGHT recommendation is also supported by the cheap valuations of media companies under our coverage i.e. Astro Malaysia (BUY, RM1.83), Media Prima (BUY, RM0.80) and Star Media (BUY, RM0.53).

• With the increasing importance of environmental, social, and governance (ESG) practices, we explain the ESG practices of media companies under our coverage in this report. We have identified common ESG criteria for the companies and have also detailed each company’s efforts in the respective criteria. We accord a discount or premium of -6%, -3%, 0%, +3% and +6% on each stock’s fundamental fair value based on the company’s overall ESG rating as appraised by us. We assign an overall 3-star rating to the media sector based on the ratings of companies under our coverage.

• The following are the common criteria that are used to appraise the companies:

1. Energy efficiency: The goal is to reduce the amount of energy required to provide products and services and hence reduce the effects of pollution. For media companies, it mainly relates to energy utilization at companies’ printing facilities. Higher ratings are given to companies that utilize renewable energy technologies, such as solar energy, and water conservation initiatives which lead to more sustainable use of resources.

2. Recycling and waste management: Besides 3R (Reduce, Reuse, Recycle) campaigns, higher ratings are also given to companies which take initiatives to reduce waste from its inception to the final disposal of waste and have a higher overall percentage of 3R in its waste produced.

3. Content management: We look at credibility, responsibility and the efficiency of content management for traditional and digital distribution channels. Higher ratings are accorded to companies which highlight investments in a more efficient content management system and have better practices at sourcing content.

4. Digital transformation: Assess companies’ digital transformation journey and efforts to support its employees’ in navigating the structural change towards digital media and trends. Higher ratings are given to companies that focus on employee development and trainings to better equip employees in this digital era and those who have a more structured approach to their digitalization journey.

5. Customer reach and experience: Customer reach and experience management are key to enable a company to capture customer feedback and improve on understanding the client base for the delivery of effective and more personalized offerings.

6. Corporate social responsibility (CSR): CSR relates to the social aspect of ESG whereby companies commit to improve its societal impact by participating in charitable, supporting, volunteering or activist goals. Higher ratings are given to companies that take part in a variety of CSR initiatives. For example, companies that not only make donations and establish collaborations but also work with local institutions to build the local talent pool, etc.

7. Human capital development: For human capital development, we look at the types of training provided to employees and provide higher ratings to companies who put more focus on digital capabilities as it is key to overcome the digital transformation experienced in the operating environment.

8. Board diversity: Board diversity in terms of gender and years of experience is important to ensure that the board has a wider range of perspectives and is equipped to guide the business and strategy of the company.

9. Accessibility and transparency: When looking at companies’ accessibility and transparency, we look at how approachable the companies’ management or representatives are with regards to providing clear, timely and relevant information to analysts and investors during briefings and other times.

Source: AmInvest Research - 19 May 2021