Improving adex outlook. According to Niesen's report, Malaysia's 1Q22 total gross adex fell 11.9% QoQ to RM1.42bn due to high base effect from strong advertisement demand in 4Q21. However, 1Q22 adex jumped 10.5% YoY as economic reopening gained traction, resulting in higher advertising spending. Despite potential decline in consumer spending amid high inflation and a mild increase in OPR rate, we are optimistic that Malaysia's adex would pick up in 2H, underpinned by (i) feel-good factor ahead of GE15; (ii) year-end sales, and (iii) steady economic recovery. This bodes well for MEDIA as c.63% of its revenue comes from advertising, supported by a dominant~71% adex market shares in the FTA-TV platform.

Better earnings outlook in 2H. To recap, MEDIA posted a disappointing 1QFY22 core PATAMI of RM4.4m, accounting for only 6.6% (vs historical 10%) of our forecast as the return of physical shopping amid transitioning to endemicity dampened MEDIA’s home shopping segment. Nevertheless, the worst could be over as we anticipate better performance in the coming quarters on (i) better adex spending in 2H22; (ii) continued growth in demand for local content from new and existing OTT platforms, driving higher content sales. We advocate buying on dips in anticipation of better earnings in 2H22.

Values resurface. After tumbling 43% from a 52-week high of RM0.66 to RM0.40 yesterday, MEDIA is currently trading at cheap valuation of 7.1x FY23 P/E (66% and 58% discount against its 5-year average 21.2x and peers of 17.1x, respectively), supported by an attractive projected FY23 dividend yield of 10%. Besides, MEDIA's strong cash pile of RM 203.3m or NCPS of 18sen (end Mar 22), which makes up 44% of its current market capitalization, would serve as a downside buffer.

More upside pending a decisive breakout above RM0.45 immediate resistance. After our successful trading buy call in MEDIA (report) back on Feb 22, MEDIA's share prices had corrected back to our previous entry prices. Technically, MEDIA is grossly oversold, with indicators showing uptick bias. A successful breakout above RM0.45 (MA20) will spur the price toward RM0.46-0.55-0.60. Cut lost at RM0.36.

Source: Hong Leong Investment Bank Research - 1 Jul 2022