Without a doubt, the improving macro conditions in 2H20 driven by reopening of the economy and better consumer sentiment, helped boost advertising demand to recover from the trough in April. Aggregately, we expect media sector to pace recovery in 2021 on the back of (i) economic recovery; (ii) successful adaptation of digital efforts; (iii) the possible snap election; and (iv) resumption of major sports events. We maintain NEUTRAL rating and make no changes to our calls and TPs for Astro (BUY; TP: RM1.10) and Star (HOLD; TP RM0.32). Following the share price run up by 58% since our last upgrade, we downgrade MPR to HOLD with unchanged TP of RM0.26. We believe the risk and reward are rather balanced with P/B of 0.6x.

Still in pandemic. As the global pandemic continues to impact economies and consumer behaviour, companies are looking to build resilience in their product offerings, focusing on customer needs in order to grow. While we see some media players are able to pivot their business models towards more sustainable earnings contributors, some are still grappling with the never ending woes.

Nielsen adex recovery. Without a doubt, the improving macro conditions in 2H20 driven by reopening of the economy and better consumer sentiment (see Figure #1), helped boost advertising demand to recover from the trough in April. We take reference in Nielsen’s total national gross adex statistics (see Figure #2 and #3), in the period of Sept-Nov 2020, adex recorded a sequential improvement of +22% from June-Aug 2020 but down -16% YoY, to RM1.1bn. We reckon the sequential improvement stemmed on the back of advertisers ramping up their marketing engagements hoping to gain back forgone sales. Even with the reintroduction of CMCO2.0 in 7 Nov 2020, adex number still continued in an upward trend. Despite the sequential improvements recorded after the strict MCO, the decline was still observed on the YTD basis (-16% YoY).

Redefine advertising. The surges in smartphones, tablet and broadband connections have encouraged a more digital-centric population. On this front, we applaud Media Prima (MPR) efforts in streamlining its operation. Since 1 April 2020, Omnia organises advertising-related solutions, marketing and sale of advertisements across the Group’s main media platforms covering broadcasting, publishing and advertiser content under content creation (see Figure #4). The separation of digital and traditional advertising solutions has shown fruitful turnaround with core PATAMI of RM4.9m recorded in the recent 3Q20, breaking the red streaks since 2017.

Pay-TV dwindling... Based on Digital TV Research, global pay-TV revenue will fall to USD152bn in 2025, down from the peak of USD202bn in 2016. The pay-TV decline is due to the growing adoption of streaming services. Additionally, the pandemic has accelerated the cord-cutting momentum as the health crisis contributed to a tail off economy and the absence of live sports. As witnessed, Astro’s ARPU has been in a steady decline in FY21, from RM99.10 in 1QFY21 to RM97.60 in 3QFY21.

… but over-the-top (OTT) flourishing. OTT has firmly planted its flag in the media industry and become mainstream. As cord-cutting trend and viewers continue to back away from traditional TV, more media companies are jumping on the OTT bandwagon. The proliferation in OTT (AstroGo) could be observed in the 78% rise of monthly active users from 933k (3QFY20) to 1. 66m (3QFY21). At this juncture, AstroGo is currently offered as a supplementary service together with the STB. We understand that Astro is in the midst of setting up a separate OTT service that they could monetize on. The ambition of being the content aggregator is building up, and barring any unforeseen circumstances, Astro is expected to start introducing the new service by 2021. A successful rollout of this offering could provide an additional boost to Astro’s growth. On the other hand, MPR has inked a partnership for a licensing deal with WeTV (subsidiary of Tencent), to enable the latter to acquire both exclusive and existing library titles from MPR, beginning 26 November 2020. This collaboration with a global tech company will further help to expand MPR’s audience beyond local reach across Asia while simultaneously provide a good exposure for our local talents and IP. Overall, we are encouraged by Astro and MPR efforts in this OTT space. As for Star Media, we remain sceptical on its DimSum OTT and opine that business plan reinvigoration is required to monetize this venture.

Cost discipline to continue. Media Prima had shrunk the number of employees by 300 in June 2020. Similarly, it was reported in the FMT News in Dec that Star Media had reduced about 200 employees in order to control expenses. We are not surprised by these news considering that the media landscape is facing a prolonged headwind with the digital disruption coupled with the ramification of Covid-19. Unfortunately, this is a necessary pain to reduce work redundancies in the soft business environment. However, we believe that this will result in longer term cost savings. We opine the cost discipline will continue moving forward to cushion the still depressed sector outlook.

Watch the space. Aggregately, we expect the sector to gradually recover in 2021 on the back of (i) adex pick-up along with economic recovery; (ii) successful adaptation of digital effort; (iii) the possible snap elections; and (iv) resumption of major sports events scheduled to take place in 2021 that could boost adex.

We maintain NEUTRAL on the sector and make no changes to our calls and TPs for Astro (BUY; TP: RM1.10) and Star (HOLD; TP RM0.32). Following the share price run up (+58%) since our last upgrade on 13 Nov 2020, we downgrade MPR to HOLD with unchanged TP of RM0.26. We believe the risk and reward are rather balanced at this juncture with P/B of 0.6x.

Source: Hong Leong Investment Bank Research - 7 Jan 2021