Highlights

• 2015 was a disappointing year for Media. Weak consumer and business sentiment caused by GST implementation, subsidy removals and weak Ringgit has led to advertisers holding back their adex spending. 9M15 industry adex declined circa 4% yoy to RM10.2bn.

• We expect adex to normalise in 2016 with a more moderate growth. 1H16 adex should remain subdued as consumer and business spending remain weak due to economic uncertainty and further erosion in spending power given rising costs coupled with structural shift in media platform.

• Nevertheless, Euro 2016 and Rio 2016 Olympics may catalyze adex to recover slightly in 2H16. We forecast adex industry to grow by circa 4% in 2016.

• Challenges faced by the sector in 2016 include: (1) Higher competition for existing media players due to introduction of DTTB; (2) Growing traction of online streaming; (3) Weaker ringgit; and (4) Continuous bleak outlook for the print segment.

• Maintain Neutral on the sector as we believe media sector outlook would continue to be affected by mainly weak consumer and business sentiment and ringgit weakness. The traditional adex -based companies would be affected by structural shift in media plat form (i.e. Media Prima, Star Media Group and Media Chinese).

• At this juncture, we prefer the Pay-TV segment, with Astro as our top pick. We like Astro due to NJOI’s growi ng mass market reach, less dependent on the volatile traditional adex medium and its home shopping business. Astro’s earnings is more resilient compared to other adex-based media groups due to its stable subscriber base. Dividend is pretty decent at a yield of 5.5%.

Risks

• (1) Weaker than expected consumer/business confidence;
• (2) Threat of new players; and
• (3) The increase of raw material prices and content costs.

Rating

• /

Valuation

• NEUTRAL
• Retain our Neutral view on the sector due to slower Adex growth resulting from weak consumer sentiment underpinned by macroeconomic headwinds, challenging business environment and weak ringgit.
• Astro (BUY; TP: RM3.33; based on DCF valuation with WACC of 6.6% and TG of 1.0%.

Media Prima (HOLD, TP: RM1.29; pegged to 10x P/E FY16 EPS, based on 4 year historical average P/E).

Star (HOLD, TP: RM2.31; based on targeted dividend yield of 6.5%).

MCIL (HOLD, TP: RM0.64; based on higher P/E multiple of 8x based on the latest 1 SD below average mean.

Source: Hong Leong Investment Bank Research - 11 Jan 2016