Investment Highlights

• OVERWEIGHT. We are overweight on the media sector as consumer sentiment and adex are expected to recover in 2023F. Our top buy is Astro due to its (i) strength in vernacular content; (ii) attractive dividend yield of 10% (iii) aggregation of various streaming services; and (iv) offering of internet service via Astro Fibre (via collaboration with Telekom Malaysia).
  Risks are geopolitical tensions, inflationary pressures and a lack of ad-driven events in 2023F, which could dampen adex prospects. We may downgrade the sector if adex underperforms together with exacerbating recession risks & geopolitical tensions.

• Both companies are constituent companies of the FTSE4Good Index Series. Astro and Media Prima are committed to ESG and sustainability. Both companies have initiatives in reducing environmental footprint, managing & recycling waste and content as well as engaging in multiple corporate social responsibility initiatives.

• Recovering business and consumer sentiment. According to the Malaysian Institute of Economic Research (MIER), the Business Condition Index (BCI) improved by 4% QoQ to 99.8 in 3Q2022 as most industries expect an improvement in business outlook. Also, MIER’s Consumer Sentiment Index (CSI) grew 14% to 98.4 due to increased consumer spending. Although both indices were below the 100-point optimism threshold (Exhibit 4), we think that a recovery is underway as economic activities normalise.

• Improving adex, back to pre-pandemic levels. Adex (excl. digital) fell 33% QoQ to RM803mil in 3Q2022 mainly due to overall adex reduction in TV (-32% QoQ), newspaper (-32% QoQ), radio (-37% QoQ) and others (-44% QoQ). We attribute the drop in adex to a lack of festive campaigns.
  However on a monthly basis, adex grew 11% to RM495mil in Oct 2022. Also, this was 8% higher than RM459mil in Oct 2019, which was pre-pandemic. We expect adex to finish strong in 4Q2022, rising 6% YoY to RM5.2bil in 2022F, which is similar to 2019. The higher adex is expected to be underpinned by higher year-end utilisation of marketing budgets by advertisers and festive promotional campaigns. Looking ahead, we expect adex to improve by 5% in 2023F on the back of stronger travel and event ad spend.
  Media Prima and Astro have taken steps to position themselves for a strong recovery in adex and consumer spending. MPR launched Omnia, an integrated marketing solution in Apr 2020 while Astro launched addressable advertising services in Jun 2022.

• Aggregation of global and local streaming services to underpin subscriber growth. Following the emergence of streaming platforms, consumers are no longer willing to pay for a wide variety of channels, resulting in a fall of TV subscriptions. Responding to the shift, Astro began offering aggregated streaming services at privileged rates to consumers in 2021. Over the long-term, we believe that a recovery in Astro’s subscription revenue would be spurred by value-for-money bundled packages and aggregated over-the-top (OTT) streaming services. We also believe that Astro would benefit from the criminalisation of digital piracy in Copyrights (Amendment) Act 2022, which was gazetted in Feb 2022.

• However, home shopping would continue to drag earnings. We expect the under-performing home shopping segment to continue affecting earnings as more shoppers return to physical stores. Home shopping accounted for 16% of Media Prima’s 9MFY22 revenue and 6% of Astro’s 1HFY23 revenue. On a positive note, we do not expect losses in the home shopping segment to grow as most of the goods are under consignment.

Source: AmInvest Research - 27 Dec 2022