Media players endured a dismal start to the year, with 3 companies under our coverage reporting results that were coming in below our expectations. Traditional media segments, especially print was among the hardest hit yet again as a result of weak adex and declining hardcopy circulation. In light of the still downbeat sentiment, coupled with a lack of immediate catalyst to drive a turnaround in fortunes, we keep our UNDERWEIGHT rating on the media sector. We have 3 SELL calls (Star, MPR & MCIL) and 1 HOLD call (Astro).

1Q19 Review: A Weaker-than-expected Start

Media sector revenue (excluding Astro) declined 16.3% yoy to RM543.5m from RM649.3m in 1Q18. Most segments (print, FTA TV and radio) saw a dip yoy which we think was partially due to a normalising effect after coming off an adex-supported year in 2018 (presence of Malaysia 14th General Election) in addition to the already cautious ad spending. In tandem with top-line contraction, the sector suffered core losses in 1Q19 with MCIL and MPR treading in the red whereas Star recorded a slim core profitability. 1Q19 results for all 3 companies were below our expectations, with variance to our forecasts coming from lower-than-expected contribution from most segments (MPR, Star) and higher-than-expected operational costs (MCIL).

Outlook: All Eyes on New Revenue Streams

Media companies have over the years geared towards strengthening their digital presence to complement their existing assets. The initiative has so far been positive in capturing the digital adex share as advertisers are increasingly moving into the digital space. For Astro and MPR, homeshopping sales have been promising, both achieving a strong yoy revenue growth of 16.6% and 23.7% to RM98.8m and RM54.5m, in their latest quarter respectively. We now expect MPR and Astro to achieve positive EBITDA by end-2020.

Maintain UNDERWEIGHT

Given the persistent challenging operating environment, we maintain our UNDERWEIGHT rating for the media sector. While we expect media players to continue strengthening their new revenue streams, and continual cost rationalisation efforts, a turnaround may prove difficult in view of the unfavourable conditions in the industry. At this juncture, we have SELL ratings for Star, MPR and MCIL while Astro has a HOLD rating. For relative exposure, Astro is our preferred pick while MPR is our top SELL for the media sector given the lack of immediate catalysts and a subdued adex sentiment affecting both its Print and TV segments.

Source: Affin Hwang Research - 14 Jun 2019