Investment Highlights

• Weak media earnings. Media Prima’s (MPR) 2HCY23 net profit was below our expectations due to lower content sales while Astro Malaysia’s FY Jan 2024 results exceeded our forecast due to lower 4QFY24 TV content costs. Even so, Astro’s FY Jan 2024 earnings dropped 41% to RM181mil, dragged by TV losses as its TV customer base shrunk by 3% YoY to 5.3mil. Connected set-top-boxes (STB) declined 4% in line with the decline in residential pay-TV and NJOI household penetration rate by 2%-point to 67%. Meanwhile, Media Prima’s net profit (which changed its FY to June from December) plunged by 36% to RM11mil in 2HCY23 due to declines in content sales (-65% YoY), home shopping (-34% YoY) and advertising revenue (-4% YoY). The substantive decline in content sales can be attributed to global over-the-top (OTT) platforms rationalising content investments.

• Slight uptick in business and consumer sentiment in 4QCY23. According to the Malaysian Institute of Economic Research (MIER), the Consumer Sentiment Index (CSI) edged up 13% QoQ to 89.4 pts in 4QCY23, reflecting the rebound in spending income. The Business Conditions Index (BCI) increased 8% QoQ to 89.0 pts in 4QCY23 due to the recovery in the manufacturing sector. In spite of the upticks, both indices were still below the 100-point threshold of optimism. We expect consumer and business sentiments to remain sluggish amidst uncertainties over the global economy, elevated US interest rates and ongoing geopolitical tensions against the backdrop of the introduction of domestic subsidy rationalisation measures and high value goods tax later in the year.

• Adex finished strong. Adex grew by 14% QoQ to RM1.9bil in 4QCY23, driven by growth in free-to-air TV (+13%), digital (+21%) and radio (+22%). We believe the growth was underpinned by lumpy year-end utilisation of the marketing budget by advertisers and festive promotional campaigns. In addition, cinema adex inched back to pre-pandemic levels thanks to increased footfalls. On a yearly basis, adex grew by 2% to RM6.6bil in 2023, fueled by digital advertising (+13% YoY). Digital adex share of revenue improved by 2%-point to 22% in 2023 with TV commanding the largest market share of 55%.

• Cautiously optimistic on 2024F outlook for adex growth due to weak consumer sentiments and economic headwinds. We think that adex will grow between 1% to 5% on the back of major sporting events such as the UEFA Euro 2024 and 2024 Olympics. However, we believe the expensive sports content viewership rights will affect media companies’ profit margins.

• Media Prima and Astro’s topline will be subdued in 2024F as new initiatives will take time to yield impact. Astro’s innovative addressable advertising services, which were launched in June 2022, helped triple the segment’s FY24 revenue, although share of this segment is still relatively small. MPR introduced its 3-year business plan in 2023, which will be guided by 3 growth pillars i.e. content boost, inventory premiumisation and exploration of new revenue streams. We believe that this strategy will take time to bear fruit as local content will need to be as competitive as international productions.

• Digital media in spotlight. Digital media revenue grew by an impressive 42% from RM1bil in 2021 to RM1.5bil in 2023, accounting for a 22% advertising market share. We reckon that digital media share will grow to 24% in 2024F, underpinned by social media advertising as consumers continue relying on mobile phones for news and entertainment. Magna, a global market research consultant, forecasts Asia-Pacific advertising revenue to increase by 6.3% with a substantial rise in digital advertising. Digital media accounted for 12% of adex revenue for Media Prima in 2HCY23 and 2% for Astro in FY Jan 2024.

• We maintain our NEUTRAL recommendation with no top picks for the sector. We are cautious on the media sector due to i) the continuous decline in revenue resulting from a shift to digital offerings, ii) insufficient digital media revenue to offset losses from legacy media declines, and iii) soft advertising expenditure (adex). Hence, we see limited earnings catalysts for media stocks.

• We may upgrade the sector to OVERWEIGHT if: i) growth in digital initiatives can offset declines in legacy media, ii) consumer confidence recovers and adex catalysts emerge, translating to higher ad-spend across all mediums, and iii) introduction of the bill on return of advertising expenditure where internet giants like Google and Facebook would have to compensate local news outlets for content sourced from them.

Source: AmInvest Research - 26 Mar 2024