Investment Highlights

• We maintain our OVERWEIGHT recommendation on the media sector due to attractive valuations of media companies. We are cautiously optimistic of recovery in 2021 due to: (i) adex catalytic events such as UEFA Euro 2020, Premier League, the NBA and others; and (ii) expect traditional media segments to show gradual recovery following the pickup in the rollout of Covid-19 vaccines in Malaysia, leading to lower incidence of Covid-19 cases and as pandemic restrictions are expected to ease thereafter.

• Our OVERWEIGHT stance is supported by attractive valuations of companies under our coverage – Astro Malaysia (BUY, fair value RM1.83), Star Media (BUY, FV RM0.53), and Media Prima (BUY, FV RM0.75) while we remain cautious on Media Chinese (HOLD, FV RM0.19) as its recovery is largely dependent on the resumption of international travel, expected by the group only to be in 4QCY21 onwards as Covid-19 vaccination picks up globally.

• 1QCY21 adex: According to Nielsen Ad Intel, industry adex for 1QCY21 stood at RM1.3bil (Exhibit 3). Nielsen started to include digital adex in its measurements in 2021 with digital accounting for 18% of adex for 1QCY21. On a QoQ basis, industry adex (excluding digital for comparison) had declined by 12% likely due to the reinstatement of MCO 2.0 in certain Malaysian states in mid-January 2021 and thereafter some of the remaining states reverted to the conditional MCO due to increasing Covid-19 cases. All media types saw declines except for in-store media, which rose 83%. Declines were led by free-to-air (FTA) TV, newspapers, and radio adex which fell by 8%, 24% and 24% QoQ respectively.

• Improved consumer sentiments in 1QCY21 but still conservative: The Malaysian Institute of Economic Research (MIER) Consumer Sentiment Index (CSI) reached a 10-quarter high to 98.9 in 1QCY21 (+14 pts QoQ) as sentiments were lifted by the National Covid-19 Immunisation Programme which kicked off during the quarter in late February 2021 and amid recovery in domestic and global economies. However, the CSI still remained below the 100-point optimism threshold as consumers continued to remain conservative. Meanwhile, the Business Confidence Index (BCI) slipped to 111.8 points (-4 pts QoQ) due to weaker domestic and external orders and falling production on lower demand but remained above the 100-point optimism threshold for the 2nd consecutive quarter as the economy recovers.

• Expect gradual adex recovery in tandem with higher vaccination rates: We expect a gradual adex recovery following the pick-up in Covid-19 vaccinations, coupled with 2021 having multiple sporting events aforementioned which would benefit Astro’s pay-TV and streaming offerings. During MCO 3.0, the communications sector, which includes media companies, is allowed to operate but workforce capacity has been limited to 60%, according to both Astro and Media Prima. News gathering, broadcast, production and distribution units among others are allowed to work in office while administrative and support staff are ordered to work from home.

• Updates on over-the-top (OTT) services: We like Astro’s OTT aggregator proposition which aims to have up to 15 OTTs in the next two years. Recent updates include the addition of two OTTs to its existing line up of Astro Go, iQIYI and HBO GO. The two OTTs are: (i) Disney+ Hotstar - with Astro being the official distributor and Disney+ Hotstar being hard bundled with Astro’s Movie Pack for an additional RM5/month starting 1 June 2021; and (ii) Astro’s own OTT sooka - a mobile-based streaming platform providing local content, live global sports action and sooka exclusives and originals targeting millennials.

• Meanwhile, we are also positive on Star’s cessation of its OTT offering dimsum by September 2021. dimsum was launched in November 2016 and its losses have since been a drag to Star’s performance over the years during its gestation period as it weighed on the group’s key print & digital segment that was already impacted by the structural decline of customers switching to digital alternatives. Star’s management has redeployed its resources towards its current and new opportunities, recently coming up with a diversification strategy where 30% of its revenue will come from new businesses related to either property or digital products.

• Home shopping’s growth to normalize vs. 2020: Both Astro’s Go Shop and Media Prima’s WOW Shop saw strong performance in 2020 as the Covid-19 pandemic restrictions had caused a shift in consumer behaviour towards e commerce mobile commerce (ECMC) platforms. Home shopping accounted for 11% of Astro’s FY21 revenue and 30% of Media Prima’s FY20 revenue. Both companies expect CY2021 performance to normalize compared to last year, and it would be better than pre-pandemic due to the expansion in its registered customer base over the past year.

• We may downgrade the sector from OVERWEIGHT to NEUTRAL/UNDERWEIGHT in the case of: (i) slower-than-expected containment of the Covid-19 pandemic impacting adex sentiments; (ii) prolonged Covid-19 restrictions continuing to impact various segments such as print circulation, content production, out-of-home, offline events and exhibitions and travel businesses; and (iii) increased competition in the digital space affecting monetization of digital initiatives.

• Top picks:

1. Astro Malaysia (BUY, FV RM1.83) due to its: i) strength in vernacular content and high household penetration rate of 74% as at FY21; (ii) its move to expand its offerings by aggregating OTTs via partnerships and launching of its own OTT sooka – aiming to have up to 15 OTTs in the next two years; and (iii) attractive dividend yield of 7–9%.
2. Media Prima (BUY, FV RM0.75) as a stronger recovery play due to its: (i) strategies in home shopping and digital; (ii) potential for its advertising-focused Omnia proposition to benefit from adex recovery and realizing better synergies; and (iii) margin improvements following lower operating expenses due to its ongoing cost optimization initiatives.

Source: AmInvest Research - 18 Jun 2021