Highlights

• 2017 continued the trend of dismal adex condition, affected by weak consumer and business sentiments caused by political uncertainty and weak MYR leading to a holding back of ad spends by advertisers.

• The advertising expenditure (adex) contracted 12.4% yoy in 1Q17 from RM2.11bn to RM1.85bn broken down into FTA TV( -5.7% yoy), newspaper (-22.6% yoy); magazines (-36.3% yoy), radio (-5% yoy); cinema (+57.8% yoy); retail media (-18.0% yoy) and Out of Home (-3.2% yoy).

• The daily average print circulation in Malaysia fell by 16% yoy in FY16 from 133m copies to 114m copies. We foresee that outlook for the newsprint segment will continue to be challenging due to the ongoing drive of digital migration by the traditional print advertisers.

• Revenue of digital advertising market amount ed to RM1.37b in 2016. Content is the first priority as that’s what attracts the crowd, it is vital for media companies to develop contents that can travel across various platforms.

• Latest data from Malaysian Institute of Institute of Economic Research (MIER) reveals that the quarterly figures for both Consumer Sentiment Index (CSI) and Business Condition Index (BCI) improved slightly to 76.6 pts (+6.8 pts qoq; +3.7 pts yoy) and 112.7pts (-22.5 pts qoq; +19.8pts yoy), respectively. CSI remained below the threshold of optimism of 100 pts and BCI has climbed above the benchmark.

• Astro remains our top pick as we still prefer the pay-TV segment. We like Astro due to its resilient nature, independence from traditional adex and its growing home shopping business coupled with its decent dividend yield of 5.0%.

Risks

• (1) Accelerated shift to online media from traditional media;

• (2) Threat of new players;

• (3) Prolonged weak consumer/business confidence; and

• (4) Increase in raw material prices and content costs.

Rating/ Valuation

NEUTRAL ( ↔ )

• Retain our Neutral view on the sector due to dismal adex growth resulting from weak consumer sentiment underpinned by macroeconomic headwinds, shift in media platform and challenging business environment.

• Astro ( BUY; TP: RM2.98 based on DCF valuation).

• Star ( HOLD; TP: RM1.98 based on targeted dividend yield of 6%).

• MCIL ( HOLD; TP: RM0.55 based on unchanged P/E multiple of 9.5x (1SD below average mean)).

• Media Prima ( SELL ; TP: RM0.67 pegged to 10x P/E (4 year historical average P/E) FY17 EPS).

Source: Hong Leong Investment Bank Research - 5 Jul 2017