Highlights 

Prologue…  Internet has  trans formed the way we consume content.  Online  streaming  has  bee n  gaining  traction amongst  consumers.  When  HBO  announced  the  beginning of their standalone streaming service starting from year 2015 onwards, it gives us a glimpse of what the future may be for TV business in Malaysia.  Hence, we believe smart TV will be the main channel for content owners to forward integrate into the market.   

Technological  determinism…  Technology  is  what influences the change and development of society. Trend is changing  – from traditional  to a more digital context.

When content meets Internet…  As online  video streaming are  gaining more interests among the technological  affluent consumers, we believe smart TV will be able to complement consumers as well as content owners and providers.

Malaysians  spent  on  average  18  hours  per  week  on  the internet.  The  amount  of  content  being  watched  online  has been increasing over the years.  It would not be a surprise if other content producers and owners will follow the footsteps of HBO, bypassing the content aggregators.

Why Smart TV is  the  way to go?  According to research done by Technavio, Global Smart TV ma rket is forecasted to reach  US$219.4bn  by  2015,  growing  at  CAGR  of  20.6% from year 2011 to 2015.

Content  still wins…  Ultimately, it all boils down to content. Therefore,  content  producers  and  providers  need  to  deliver an exceptional entertainment content and ex perience to feed the vernacular  demands  of Malaysian citizens.

Digitalisation of FTA TV… DTTB will be implemented in 2Q next  year.  We  foresee  no  immediate  impact  on  the  overa ll sector;  however,  competition  among  the  existing  media players in terms of advertising  will increase.  

Potential winners?  Astro and Media Prima could be the potential  winners.  Despite  the  change  in  the  media landscape,  we  believe  Astro’s  position  as  a  content aggregator would be least impacted due to its position as a market  leader  on  top  of  their  efforts  in  localising  and developing  their  own  content  &  keeping  abreast  of  the technology trends.

Risks

(1) Weaker than expected consumer/business  confide nce;

(2) Threat  of new players; and

(3) Rising raw material prices and content costs .

Rating/Valuation

NEUTRAL

• As the  media sector currently lacks any meaningful rerating catalysts,   coupled  with  cautious  adex  spending  by businesses  and  consumers,  we  are  maintaining  our NEUTRAL  view  on the sector.
• Top  pick for sector exposure:  Astro (BUY;  TP: RM3.88).
• Maintain  our  HOLD  calls  for  Media  Prima  (TP:  RM2.10), MCIL  (TP: RM0.93)  and Star (TP: RM2.55).

Source: Hong Leong Investment Bank Research - 28 Oct 2014