Highlights

• 2017 was another disappointing year for the traditional media players as the trend of dismal media condition continued. Advertisers remained cautious with their spending due to weak market sentiment coupled with more ad spend being syphoned to digital/online platforms.

• Digital shift… a slight revenue growth is likely to be seen in FY18 through major sport events (World Cup 2018 and Premier League 2018) and Malaysia’s GE14, which likely to increase viewership and readership. Even with that, we do not expect adex to recover especially for traditional media, rather we are expecting to see a healthy growth in the digital adex mainly on mobile and video advertising.

• Cost cutting is a temporary survivorship… We witnessed Media Prima’s cost cutting action in FY17. We believe similar trimming actions would be undertaken by Star and Media Chinese in FY18.

• Higher content cost in the future … Major Entertainment and Media (E&M) companies had merged or are in the midst of merging these synergies would allow the big boys to demand for higher content cost, as they own large and lucrative TV libraries. Content purchaser like Astro may struggle with higher cost.

• 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 77.1 pts (-3.6 pts qoq; +3.5 pts yoy) and 103.1pts (-11.0 pts qoq; +19.2pts yoy), respectively. CSI remained below the threshold of optimism of 100 pts and BCI is slightly above the benchmark.

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

UNDERWEIGHT ( ↔ )

• Retain our Underweight 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 ( HOLD; TP: RM2.49 based on DCF valuation).

• Star ( HOLD; TP: RM1.47 based targeted PBR of 1.1x FY18 BVPS).

• MCIL ( SELL; TP: RM0.27 based on unchanged P/E multiple of 9.5x on FY19 EPS).

• Media Prima ( SELL ; TP: RM0.45 based on P/BV multiple of 0.4X which is 2SD below 5 years historical average to reflect the deteriorating industry environment).

Source: Hong Leong Investment Bank Research - 8 Jan 2018