Highlights

• We organised a half-day event last week, focusing on changes in advertisement expenditure (ADEX) amid challenges posted by emergence of new media. Below are the key takeaways of our event.

• Location based marketing (LBM) has seen growing trends in Malaysia. Location intelligence is powerful and is expected to gradually take up a big part of the country’s adex.

• Content marketing (CM) involves the creation and sharing of online material. As technology has changed the way people consume content, it is easier to target the millennials through CM given greater time spent on the Internet and social media.

• More Over-the-top content (OTT) players join the industry led by start-ups while large media players are also embracing this new platform.

• Influencer marketing (IM) focuses on specific key individuals rather than the entire target market. According to Nielsen, 92% of customers trust recommendations from people they know over other forms of advertising.

• Traditional media is feeling the shift… as traditional players have come under pressure in recent years from digital disruption. We foresee flattish adex growth in 2017, which is also agreed by all our guest speakers.

• We expect newsprint and TV adex to continue weaken, due to shift in consumer behaviour towards digital platforms. However, adex spending on English newspaper is still dominated by Star.

• Digital advertising revenue is forecasted to experience double digit YoY growth from 2016 onwards; making it the fastest growing segment of advertising spend in Malaysia.

• However, traditional media remains relevant despite the disruption, considering the fact that Malaysian advertisers generally allocate about 70% of their advertising budget for traditional media.

Risks

• (1) Accelerated shift to online from traditional media; (2) Threat of new players; (3) Prolonged weak business confidences; and (4) Increase in raw material prices and content costs. (5) Change in consumer behaviour

Rating/Valuation

NEUTRAL ( ↔ )

We keep our Neutral view on the media sector due to lack of key earnings catalyst. Astro remains our top-pick as we prefer the pay TV segment.

• Astro ( BUY; TP: RM3.01 based on DCF valuation).

• Star ( HOLD; TP: RM2.50 based on targeted dividend yield of 6%).

• MCIL ( HOLD; TP: RM0.61 based on unchanged P/E multiple of 9.5x (1SD below average mean)).

• Media Prima ( SELL ; TP: RM0.88 pegged to 10x P/E (4 year historical average P/E) FY18 EPS).

Source: Hong Leong Investment Bank Research - 20 Apr 2017