The government has set up a task force to consider banning the sale of Android STBs, mirroring Singapore’s move last month. The rapid sale of Android STBs in Malaysia has hampered the development of Pay-TV in the last 2-3 years. This is evident by Astro’s declining premium subscribers who opted to shift to Android STBs and other digital platforms (both legal and illegal). If the ban materialises, Astro is the clear winner as this could possibly halt or at least, slowdown their declining subscriber base. Maintain UNDERWEIGHT rating on media sector.

NEWSBREAK

Possible ban on Android boxes in Malaysia. It was reported by The Star that the Malaysian Communication and Multimedia Commission (MCMC) together with Domestic Trade and Consumer Affairs Ministry are considering banning the sale of Android set top boxes (STB) in Malaysia. Apart from that, both bodies are cracking down on the unauthorised websites that offers illegal streaming. The sale of Android STBs has hampered the development of Pay-TV in Malaysia. Sales of Android STBs have been growing rapidly in the last 2-3 years as a cheaper streaming alternative (only requires a one-time payment) supported by faster internet connection.

HLIB’s VIEW

Time needed to ban? Singapore took 3 years to review the ban of Android STBs, which includes amending its Copyright Act. We expect a shorter timeframe for Malaysia as media companies have mooted the idea in the past 2 years due to the disruptive impact. We believe the government has started the discussions on the ban by setting up a task force to review the current law.

Impact from the ban. In Malaysia, Astro appears to be the most impacted player with the rapid sales of Android STBs as evident by its declining premium subscribers in the past 3 years. However, we note that Astro has managed to slowdown the subscriber loss with NJOI. Should the ban materialise, Astro would be a beneficiary as this could possibly put a halt (or at least slowdown) to its declining premium subscriber base and possibly lift its ARPU (currently at RM99.90). However, we note that despite the ban on Android STBs, Astro would still face competition from legal streaming platforms such as Netflix.

More positive news for Astro. Astro controlled 77% market share of Pay-TV market in Malaysia and the rest is controlled by TM through Unifi TV. Recently, TM announced that their latest Unifi package would not be bundled with Unifi TV subscription due to changing consumer trends. We view the news as a positive for Astro as this could assist Astro to expand their subscriber base.

Maintain UNDERWEIGHT. Should the ban on Android STBs materials, we reckon that this would be a positive catalyst for the lacklustre media sector (especially for Astro) which is being hampered by the digital disruption. For now, we maintain our UNDERWEIGHT rating on the media sector. Following the recent surge in Astro share price, we downgrade Astro from BUY to HOLD with an unchanged TP of RM1.70. Nevertheless, Astro’s earning prospect remain intact on the back of its stable adex outlook and coupled with generous dividend payment of 5% yield.

Source: Hong Leong Investment Bank Research - 7 Feb 2019