Despite the multitude of negative headlines plaguing the wider economy we argue that (i) positive consumer and business sentiments; (ii) potential adex boost from a potential early GE15 and FIFA World Cup; and (iii) attractive dividend yields amid market volatility should sustain the Media sector’s near term outlook. We maintain OVERWEIGHT on the sector and make no changes to our calls and TPs for Astro (BUY; TP: RM1.34), Star (HOLD; TP: RM0.30) and Media Prima (BUY; TP: RM0.67).

Adex for 5MCY22. Based on Nielsen’s report (see Figure #1), 5M22 adex grew by 9.2% with total industry adex of RM2.57bn (+9.2% YoY). Other than In-store media and Newspapers, which registered declines of -70.0% and -4.6% YoY, respectively, other segments registered increases following the pickup in economic activity as Covid restrictions eased. Notably, Radio registered a YoY increase by +18.3% contributed by higher road traffic following the resumption of interstate travel and back to office mandates. By major segments, FTA TV continued to outperform Newspapers (+2.6% YoY).

Positive consumer and business sentiments. MIER Consumer Sentiment Index (CSI) for 1Q22 came in at 108.9 points, up from 97.2 points in 4Q21 while Business Conditions Index (BCI) decreased to 101.0 points from 122.0 points in 4Q21 (see Figure #2). Despite a slight drop in the BCI, both indexes were still above the 100- point optimism thresholds. As both of these indexes are still above the optimism thresholds, we argue that the signs still point towards a positive business outlook and would bode well for adex, at least for the remainder of 2022.

Adex friendly events for 2H22. As for adex outlook in 2H22, two events are expected to drive adex spending which is the FIFA World Cup (21 Nov to 18 Dec 2022) as well as potentially an early GE15. In addition, e-commerce giants such as Lazada and Shopee have been allocating a portion of their advertising budgets towards more traditional advertising channels such as FTA TV instead of strictly digital. This is a boon to adex outlook as mega sales events (10/10, 11/11, 12/12) grow in popularity and e-commerce platforms advertise these sales events on prime TV time slots as well as curate special live shows in collaboration with celebrities to promote these events.

Strengthening USD against RM. The USD has strengthened against the RM amid the Fed’s rate hike cycle. This will inevitably raise newsprint costs which is a bane for Star as its primary source of revenue is still its print segment whereas Astro and MPR are relatively sheltered from this as Astro has hedged its USD costs for FY23 and most of MPR’s content costs are in RM.

2H22 Outlook. There is no shortage of negative headlines as we head into 2H22. Nonetheless, we believe there are still tangible positives for the Media sector from the (i) resumption of economic activities; and (ii) potential boost to adex should an early GE15 happen as well as the FIFA World Cup event. Moreover, all three stocks under our coverage have shed 18.3-42% in share price since their respective peaks in Mar 2022. Astro and MPR have projected dividend yields of 8.4% and 9.2%, respectively while Star currently sits on a net cash position of RM346.1m. Initiatives taken over the last few years have also resulted in the media companies having leaner cost structures, aiding their earnings trajectories. We argue that, amidst the current market volatility, Astro and MPR dividend yields should provide downside supports to their share prices.

We maintain our OVERWEIGHT rating on the sector for the reasons mentioned above.

Astro (BUY; TP: RM1.34) remains our top pick for the sector as we foresee further contributions coming from (i) further uptake of its new bundle packages (content + broadband fibre) as it provides more value and cost savings for customers; (ii) better value proposition of Astro’s content as it aims to become the #1 streaming aggregator in Malaysia with more streaming service partnerships in the pipeline; and (iii) further recovery in commercial subscriptions (which provides a better margin) as international travel resumes for Malaysia. Astro also yields an attractive 8.4%.

Media Prima (BUY, TP: RM0.67). We believe that the future growth of the company is multi-pronged underpinned by the improved performance from its advertising revenue and growth in content sales. MPR also has an attractive projected FY22 dividend yield of 9.2%.

Star (HOLD; TP: RM0.30). We remain cautious on its prospects as newsprint cost could potentially increase following the strengthening of USD against RM. Moreover, the decline of its traditional segment is expected to outpace the growth from its digital segment. Nonetheless, the group’s current share price is trading at 39.6% discount to its NCPS of RM0.48, which should provide downside support to its share price.

Source: Hong Leong Investment Bank Research - 18 Jul 2022