The media sector faces structural headwinds such as still-weak adex consumption and increasing competition from digital media and OTT platforms despite the ongoing FIFA World Cup and abolishment of GST. Nevertheless, Astro remains our top pick amid potential merger talks and expected record-breaking viewership during two major events in FY19, namely GE14 and World Cup. Maintain MARKET WEIGHT as valuations are already at the lower end of historical level.

WHAT’S NEW

• 5M18 total gross adex contraction persisted at 7.5% yoy. While total gross adex continued to fall by 7.5% yoy to RM2,406m in 5M18 (5M17: RM2,601m), Astro has successfully defended its adex market share by registering a 6% yoy adex growth in 1QFY19. Meanwhile, Media Prima’s adex still lags in the competitive adex market. As Media Prima derives about 85% of its revenue from adex, the cannibalisation of its adex revenue stream by competitors, especially its pay-TV counterpart, Astro, is clearly reflected in its revenue contributions from the traditional media platforms. Essentially, the contracting adex demand reflects: a) still-poor consumer sentiment resulting from the lingering impact of the previous government coalition’s subsidy rationalisation exercises, and b) structural shift from traditional media to digital media. Note that there has been a disconnect between consumer sentiment and adex spending, where the correlations have turned negative on the back of rising digital media.
• Record-breaking viewership expected for Astro in FY19 amid two major events – GE14 and World Cup. Understandably, Astro has experienced record-breaking TV viewership during GE14 with Astro Awani’s page views and user traffic surging >100% qoq and yoy in May 18. Management is expecting all-time high viewership for the World Cup as well on the back of exuberant mood post GE14 and favourable matches timing for Malaysian football fans. Astro’s World Cup package sales have been encouraging with over 3,000 commercial enterprise business, 30,000 residential passes and 55,000 sports package upgrades sold prior to the opening of World Cup

ACTION

• Maintain MARKET WEIGHT due to the lack of catalysts in the sector while downside risks have largely been priced in. Although the FIFA World Cup and abolishment of Goods and Services Tax (GST) are expected to improve the overall consumer sentiment, several sticky issues still linger. Newsprint publishers are facing a lack of material turnaround at various new non-traditional businesses while pay-TV providers are expected to experience higher churn rate and sluggish ARPU growth as subscribers are spoilt for choice for over-the-top (OTT) platforms. There has also been a disconnect between consumer sentiment (on upward trend in the past few quarters) and adex spending (on declining trend), which in our view was due to the cannibalisation of digital media. Nevertheless, we are maintaining our MARKET WEIGHT stance as valuations are already at the lower end of historical level with Astro trading below -2 SD of 5-year mean PE and Media Prima at slightly above -2 SD of its 5-year mean PB.

Source: UOB Kay Hian Research - 26 Jun 2018