We organised a half-day media conference last week. Our speakers shared that traditional media is still very relevant today considering the fact that about 80% of total adex spend are still on traditional media platforms. The fastest growing digital adex is in the form of online videos. Platforms like YouTube have led to the rise of many talented individuals who write contents and film for multinational brands, taking away adex from the bigger boys. In spite of the improving consumer sentiment, we remain UNDERWEIGHT on the sector as the companies under our coverage are still unable to gain market share in digital adex space.

We invited Astro, Nielsen, MDEC and a YouTube Personality last week for a half-day media sector conference. The focus of the conference was on digital disruption in the media sector. Below are the key takeaways of our event.

Astro to Focus on Local ASEAN IPs and Innovative Pay TV Packages. Astro will be betting on premium Nusantara content moving forward. The group is looking at a twinning concept with their respective partners across South East Asia. Astro will also be offering more cost effective personalized World Cup bundles (i.e. semi-final match, final match and etc.) across all their platforms in order to attract a larger market segment.

Radio Shines Brightest Among the Rest. Both Nielsen and Astro shared that unlike print and TV, radio is still the most popular choice to source for news and entertainment among average household. A large population in Malaysia still tune into radio station everyday while driving. Astro grew its lion’s share in the market by 10ppt over the last 5 years (Figure #1). Together with its latest two radio stations, Astro now has eleven stations. Its closest competitor Media Prima runs four stations followed by Star Media Group’s two stations.

Traditional and Digital Media Are Meant to Complement Each Other. Nielsen shared that traditional media will still dominate the industry, as it remains relevant despite the digital disruption, considering the fact that Malaysian advertisers generally still allocate about 80% of their advertising budget for traditional media. There are products (i.e. luxury watches, cars and properties) that experience better results from offline marketing, as the targeted audiences are the older generations who are mostly less tech savvy.

Stronger Ringgit Bode Well for Better Consumer Sentiment. Malaysia consumer sentiment index (CSI) plummeted by 29 points from 120 in 1Q12 (why are you commenting on something as far back as 2000?) to 91 in 1Q18 (Figure #2). However, 1Q18 showed a good improvement of 8ppt QoQ and 14ppt YoY due to (i) improving economic prospect; (ii) stronger ringgit against the USD; and (iii) improved job expectations. Our in house economist expects the ringgit to hover around RM3.8-4.0 against the USD this year, with that in mind, advertising spend should be sustaining well in FY18.

Digital Video Ads Are Rising Fast. The low barrier of entry in the online media industry has led to the rise of many individual talents and these talents are slowly taking away adex from the big boys. Targeted audience advertising is what brands are looking for. JinnyboyTV shared with us that 70% of its revenue is generated from branded content and his company works closely with huge brands like McDonalds, HP, Samsung and many more. They help brands create attractive video contents, be it a short sketch, comedic content, or an Instagram post.

Update on Media Prima. We gather that the group is placing initiatives on

i) Rev Asia, which is one of the main drivers for the group’s digital adex. A more visible contribution from this segment would be seen in FY18 with an expectation of a 20-25% revenue growth.

ii) Primeworks, their content creation arm has successfully sold their IP (Ejen Ali) to over 45 countries. Moving forward, the group will focus on producing and exporting more IPs.

iii) Home shopping, despite being still in the red, top line grew by more than 100% YoY in FY17. The group is targeting for a turnaround in FY19.

In light of improving consumer sentiment, we would take this opportunity to raise our FY18-19 earnings forecast by 23-43% (the large percentage change is mainly due to the low base effect) respectively to better reflect the cost structure and revenue growth for the digital segment. Despite the earnings upgrade, we have decided to take a more conservative valuation approach and apply a P/B multiple of 0.5x (from 0.4x previously) which is 2SD below its mean (5 year) to reflect the slow improving traditional industry environment. Effectively, this lowers our TP from RM0.45 to RM0.31. Nonetheless, given the 59% share price fall since Jan 2018, we upgrade Media Prima from Sell to HOLD as we feel this has already bottomed out.

Ratings. As the shift of traditional media to online media remains a hurdle, we maintain UNDERWEIGHT on Media sector. We reiterate HOLD for Astro with the TP of RM2.02 and SELL for MCIL with TP of RM0.27. As previously mentioned, we upgrade Media Prima to HOLD from SELL with a lower TP of RM0.31. However with the recent sell down of Star Media Group, share price have plunged more than 10% below our bearish TP, thus we put it UNDER REVIEW pending management meeting. Previously, we have HOLD call for Star with TP RM1.50.

Source: Hong Leong Investment Bank Research - 30 Apr 2018