Highlights

• Malaysians are now exposed to a few content aggregators / online streaming platforms i.e. iFlix and Netflix. Apart from iFlix and Net flix, Hong Kong-based PCCW Media Group has launched VIU in Singapore. An OTT multi-screen, it possesses a library of premium Asean contents (Chinese, Japanese and Korean titles). Soon, VIU will be available in India, Indonesia as well as Malaysia.

• The penetration of both Net flix and iFlix in Malaysia will act as an element for existing media players to innovate and keep up with evolvement of technology and protect their market share, as done by Media Prima (producing and delivering content via Tonton) and Astro (Astro On The Go and VOD services – OD Free, OD Plus and OD Store).

• Both platforms are ramping up activities to steal market share in Malaysia (for iFlix, pacts are being sealed with local Telcos such as DiGi and TM). Consumers now have more options to view their favourite content.

• We opine that Astro may be under a long term pressure due to the presence of the online streaming platforms. Undeniably, depending on your content preferences, there will be some customers opting for cheaper streaming services.

• Nevertheless, we believe Astro should weather through this turbulence well as the group has an advantage over the online streaming platform in terms of its (1) Live content (sporting events) and (2) Vernacular content.

• With its expertise in producing local contents (Maharaja Lawak, Super Spontan, 2015 CGM and International Superstar), Astro is capable to feed the vernacular demand from its high-end customers. Net flix on the other hand delivers solely English content to its subscribers.

• Also, note that Netflix’s movi es and tel evision seri es are still subject to Malaysian Communications and Multimedia Commission (MCMC)’s content standards.

• Considering online streaming is still in early stages, we feel the impact should be minimal for now. Top pick for the sector remains Astro due to its less reliance on the traditional adex platform and stable subscriber base.

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 - 27 Jan 2016