Investment Highlights

• Expect recovery in business sentiment. According to the Malaysian Institute of Economic Research (MIER), the Consumer Sentiment Index (CSI) grew 7% QoQ to 105.3 in Dec 2022, above the 100-point optimism threshold as inflation worries continued softening amid improvement in jobs and income expectations. Although the Business Condition Index (BCI) fell by 14% QoQ to 85.9 in Dec 2022, we expect a recovery to be underway as economic activities normalise (Exhibit 4) after being affected by Covid-19 last year.

• Expect adex to grow 5% in 2023F. Adex (excl. digital) grew 5% YoY to RM5.2bil in 2022 underpinned by higher year-end utilisation of marketing budgets by advertisers and festive promotional campaigns. However, adex fell by 17% MoM to RM0.4bil in Jan 2023 – due to overall adex reduction in TV (-12% MoM), newspaper (-25% MoM), radio (-24% MoM) and others (-38% MoM).
  The MoM contraction in Jan 2023 is within expectations as 1Q adex is typically seasonally weaker. Looking ahead, we expect adex to improve by 5% in 2023F on the back of stronger travel and ad spending.
  Both Media Prima (MPR) and Astro have taken steps to position themselves for a recovery in adex and consumer spending. Recall that MPR launched Omnia, an integrated marketing solution in Apr 2020 while Astro commenced 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 variety of channels, resulting in a fall in TV subscriptions. As the number of streaming services proliferated, Astro’s move to bring together multiple services into a single platform is expected to help address the issue of content fragmentation and make it easier for users to find and access content.
  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 the Copyrights (Amendment) Act 2022, which was gazetted in Feb 2022.

• Home shopping to continue to drag earnings. We expect this loss-making segment to continue affecting earnings as shoppers return to physical stores. The losses mainly stem from delivery costs, which increase in tandem with home shopping sales. On a positive note, home shopping’s revenue contribution to MPR and Astro is low and declining. For MPR, it accounted for 24% of revenue in FY21 and 15% in FY22, whereas for Astro, the segment made up 10% of topline in 9MFY22 and 5% in 9MFY23. We do not expect losses in the home shopping segment to widen as most goods are under consignment.

• We are OVERWEIGHT on the sector, premised on expectations of a recovery in business confidence and adex in 2023F. Our top buy is Astro due to its (i) attractive dividend yield of 9%; (ii) strength in vernacular content; (iii) aggregation of various streaming services; and (iv) offering of Astro Fibre, via collaboration with Telekom Malaysia.
  Risks are geopolitical tensions and a lack of ad-driven events in 2023F, which would dampen adex prospects. We may downgrade the sector if adex underperforms due to recessionary risks and geopolitical tensions.

Source: AmInvest Research - 21 Mar 2023