We Take Some Cues From the National Recovery Plan (NRP) to Gauge the Media Sector’s Recovery. We Expect to See a Recovery in Adex as Businesses Attempt to Get a Slice of Pent Up Demand From the Reopening Pie From the Eventual Transition to Phase 3 (estimated Sept-Oct) of the NRP When More Social Activities Are Allowed. Furthermore, Segments Such as Newsprint, Radio, Events and Out of Home Advertising Will Also See a Recovery as Movement Restriction Eases Under the NRP. We Maintain NEUTRAL on the Sector and Make No Changes to Our Calls and TPs for Astro (BUY; TP: RM1.41), Star (HOLD; TP: RM0.43) and Media Prima (BUY; TP: RM0.61).

Nielsen 1QCY21 adex. Based on Nielsen report (Figure #2), total industry adex for 1QCY21 was RM1.33bn. Note that since 2021, Nielsen has started reporting digital adex in its report. For comparison, the total adex excluding digital recorded for 1QCY21 was RM1.09bn (QoQ: -12.2%, YoY: +1.7%). The QoQ weakness was due to MCO2.0.

MCO3.0 and FMCO in 2Q21. In 2Q21, nationwide MCO3.0 was implemented from 12- 31 May and was subsequently replaced with FMCO since 1 June (still ongoing). Undoubtedly, the threat of rising Covid cases and prolonged movement restriction will dampen consumer and business sentiments and are expected to result in weak adex. To recap during MCO1.0 (mid-Mar to end-Apr 2020), revenues of all 3 companies under our coverage suffered both QoQ and YoY declines (Figure #3). The decline was most pronounced in Star Media (-52.1% QoQ, -59.5% YoY) followed by Astro (-14.1% QoQ, -15.7% YoY), while Media Prima’s contraction was more moderate (-0.9% QoQ, -20.4% YoY). Although Media Prima’s adex will be negatively impacted during FMCO, especially for its out-of-home advertising and radix segments due to lower road traffic, its home shopping segment (~30% of top line contribution) is expected to partially cushion this decline as consumers engage in more online shopping in the absence of physical shopping avenues. For Astro, the decline in adex is expected to be cushioned by its relatively more stable revenue stream from subscription and its home shopping segment (~10% of its top line contribution). Finally, Star Media is likely to be impacted the most as it will feel the full brunt of the impact from FMCO due to the decline in revenue from its bread and butter newsprint segment sales as well as weaker adex revenue.

How did Covid-19 affect the local media industry? The onslaught of the pandemic and series of lockdowns that ensue had structurally changed the local media industry. We have seen some trends that were already in place pre-Covid accelerating. For example, the decline in newsprint sales was aggravated due to lockdown restrictions as consumers were not able to purchase physical copies (Figure #4). As consumers are shifting to consume their news through digital media, Star Media has started introducing paywall subscription to its online news portal starting March 2020 as part of the group’s monetisation strategy. Another segment that suffered due to the pandemic was the event segment for Star Media due to government’s SOP and restrictions on physical events. However, we note that Star Media has been actively organizing online workshops and events since the onset of the pandemic. Nonetheless, as most of these events are free with low viewership at this moment, it remains to be seen whether Star Media will be able to monetize and grow this segment in the future. However, not all is bleak for the media companies, for Astro and Media Prima, both of these companies saw a spike in their home shopping segment during the pandemic especially during MCO1.0 as consumers spent more time online while locked at home (Figure #5).

sooka vs dimsum. In the OTT space, we witnessed 2 opposing events that took place in 1HCY21. On one hand, Star Media announced that it will be shutting down its OTT service dimsum by end-Sep while on the other hand, Astro launched its own OTT app sooka on 8 June. dimsum was not able to gain significant traction since its launch in Nov 2016 and it was one of the main contributors to Star Media’s loss. Will sooka suffer the same fate as dimsum? We think this is not likely due to several key differences . Firstly, as majority of the content on sooka are Astro’s own originals and existing content, it will be able to save on its content cost. Furthermore, sooka will allow Astro to further monetize these content that is already produced. This is in stark contrast with dimsum, which has to spend a large sum to purchase content from external providers. Secondly, original content is also a key differentiator and an important feature for the success of an OTT app. This was seen with global OTT brands such as Netflix, HBO, Disney+ and iQiyi where they invested heavily to produce original contents that are available exclusively on their platforms to differentiate themselves from competitors. On this front, Astro capitalizes on its strength in vernacular content, which commands the biggest TV viewership share in Astro pay TV (67% of its viewership in 1Q22). Due to its niche content, this sets sooka apart from its competing OTT apps in the market, while dimsum only acts as an aggregator of external content. From what we gather, in its first 10 days of launch, there were close to 200k downloads for sooka app and more than 8k+ user subscriptions for its VIP pack.

2H21 Outlook. We take some cues from the National Recovery Plan (NRP) to gauge the media sector’s recovery. The eventual transition to Phase 3 (estimated Sept-Oct) of the NRP (now still in Phase 1) will see some social activities allowed. We reckon this could involve dine-ins and leisure shopping at physical stores. With more people coming out of homes and the reopening of consumer centric businesses, we expect to see a recovery in adex as businesses attempt to get a slice of pent up demand from the reopening pie. Furthermore, segments such as newsprint, radio, events and out of home advertising will also see a recovery as movement restriction eases under the NRP.

We Maintain NEUTRAL Rating on the Sector.

Astro (BUY; TP: RM1.41) is our top pick justified by (i) its strong position in the OTT market as the leading aggregator of streaming services; (ii) growing home shopping segment; (iii) penetration to the underserved millennial market through the launch of sooka; (iv) ongoing efforts to improve its products and user experience; and (v) generous yield at 6.4%.

Media Prima (BUY, TP: RM0.61). We believe that its future growth will be supported by its home shopping business, digital segment as well as from the stronger adex sales through its integrated advertising solution OMNIA. Coupled with a leaner cost structure, its earnings is now more sustainable which should weather through short term headwinds.

Star (HOLD; TP: RM0.43). We remain cautious on its prospects as the decline of its traditional segment is expected to outpace the growth from its digital segment. Nonetheless, the downside would be supported by its NCPS of RM0.47.

Source: Hong Leong Investment Bank Research - 6 Jul 2021