Given the continued weakness in advertisement spending, declining newspaper circulation and lack of mega events in the near term, we are inclined to maintain our UNDERWEIGHT rating on the media sector. We expect overall sector growth to be muted for 2018 with 2 SELL calls (Star and MPR) and 2 HOLD calls (Astro and MCIL). New ventures have generally contributed positively, albeit from a low base, and we believe more time is needed for these businesses to contribute more meaningfully to overall earnings.

1H18 Review: Largely Disappointing Despite GE and World Cup

Media sector revenue improved slightly in 1H18 by 2.4% yoy to RM1.4bn, mainly due to higher contribution from the non-core traditional media segments, but this was partially offset by declines in revenue of the core print and FTA TV network divisions. Media sector total core earnings turned into losses in 1H18 (excluding Astro) as the 3 companies posted weaker core earnings. Star Media (“Star”) and Media Chinese International Limited (”MCIL”) saw their 1H18 core earnings drop by 12.5% and 8.9% yoy, respectively, to RM13.2m and RM25.8m, whereas Media Prima’s (“MPR”) core losses widened to RM39.9m from RM29.4m in 1H17. The momentum in ad spending weakened after Malaysia’s 14th General Election (GE) as the market turned more cautious despite positive events such as the World Cup. 1H18 results for MPR and Star were below our expectations, while MCIL’s were above our expectations.

Outlook: Non-core Segments Picking Up Slowly

We believe the structural changes in the media industry will keep the operating environment very challenging for the traditional media divisions (print and TV network), even more so with an uneventful remainder of 2018. Given the rising costs of business operations, cost management and productivity improvement plans are needed in the near term in order to improve future earnings. All the media companies have also expanded beyond the traditional media into other divisions, which include digital media, digital billboards and commerce. These initiatives, in our opinion, are still at their early stages and need time to offset the decline in the bottom line of the core businesses.

Maintain UNDERWEIGHT, SELL on MPR & Star

Due to the weak fundamentals in the traditional media industry, we maintain our UNDERWEIGHT rating on the media sector. We have SELL ratings for MPR and Star while MCIL and Astro have HOLD ratings. Our top SELL for the media sector is MPR as we remain cautious on the nearterm outlook of its key traditional media businesses given the continual challenges/uncertainties in the market.

Source: Affin Hwang Research - 5 Sept 2018