10M21 adex grew mainly led by the FTA segment. The improvements in consumer and business sentiments should bolster for an adex recovery going in to 2022. While we are cognizant of the structural issues faced by the media sector, we also note the positive efforts taken by the sector to arrest the earnings decline. We upgrade our sector rating to OVERWEIGHT (from Neutral) premised on the brightening outlook and the undemanding valuation for the sector. Our top picks for the sector are Astro and Media Prima.

Adex growth led by FTA TV segment. Based on Nielsen report, 10M21 adex grew by +17.9% YoY mainly led by FTA segment. The segments that dragged the overall adex recovery in 10M21 were those that were most impacted by the lockdown, i.e. newspaper, magazine and cinema. Notably, FTA TV remained resilient in 2021 as advertisers prefer FTA TV due to its wider audience reach as people spent more time at home during lockdown.

Improving consumer and business sentiments. MIER consumer sentiment index (CSI) recorded 101.7 in 3Q21 (2Q21: 64.3; 3Q20: 91.5), a vast improvement compared sequentially and SPLY. The CSI also crossed the 100-point optimism threshold for the first time since 3Q18 indicating consumer optimism following the easing of Covid-19 movement restrictions. On the other hand, MIER business condition index (BCI) recorded 97.0 in 3Q21 (2Q21: 87.5; 3Q20: 86.3), indicating a recovery in business sentiment following the gradual resumption of business activities as restrictions ease. The improvements in both CSI and BCI are positive indications of an economic recovery, which should bode well with adex spending ahead.

Initiatives taken to tackle the media structural issues. The local media sector was under a structural decline where the traditional media pie size diminishes as the TV, print and radio segments face competitions from new media such as streaming services and online news portals, while advertisers are also reallocating their ad spend towards Facebook and Google. Further aggravating this, Covid-19 impacted segments most vulnerable to lockdown restrictions, i.e. newsprint, radio and event, while pay-TV subscription and home shopping revenues were also adversely impacted by the lower household dispensable income. Nonetheless, positive efforts were taken by the local media players to arrest the decline in earnings, including cost rationalization efforts, integrating and streamlining advertising solutions, disposal of loss making unit, strengthening their digital media segments as well as rolling out new product initiatives that cater to the shift in media consumption preferences.

Upgrade to OVERWEIGHT (from Neutral). Following the easing of restrictions and the economic reopening, we reckon the worst is likely over for the media sector. As Malaysia is on a stronger footing this time around to better manage Covid-19 given a wider array of arsenal at its disposal (inoculation of adolescence, booster shots and “Covid pills”), we believe that a full lockdown can be averted going forward, which will help to pave ways for a more sustainable recovery path for the media sector. As leading indicators such as the improving consumer and business sentiments, projected economic growth for Malaysia (HLIB estimate: +5.5% YoY for 2022) are pointing towards a brighter adex outlook, we believe investors should take this opportunity to nibble in the sector while valuations are still undemanding. Our top picks for the sector are Astro (BUY, TP: RM1.40) which is currently providing an attractive dividend yield at >7% and Media Prima (BUY, TP: RM0.61) as we believe the future growth of the company is multi-pronged underpinned by the improved performance from its advertising segment, the positive contribution from its home shopping segment and the growth in content sales and distribution.

Source: Hong Leong Investment Bank Research - 6 Jan 2022