We reiterate our NEUTRAL view on the media sector. The current spotlight is on the bid for the country’s Digital Terrestrial TV Broadcasting (DTTB) project. According to the Malaysian Communications and Multimedia Commission (MCMC)’s timeframe, the winner is expected to be announced in 4QCY13. The authority has selected three bidders for the final evaluation round of which we believe, Puncak Semangat Sdn Bhd and Redtone Network Sdn Bhd have fairly high chances of success in view of their robust financial strength, vast industry experiences and strong shareholders support as opposed to the third bidder – I-Media Broadcasting Solutions Sdn Bhd. While the final evaluation is yet to be concluded, we understand that a Common Integrated Infrastructure Provider (CIIP) is expected to be set up by the successful bidder. There is a possibility for the CIIP to seek public listing should the successful bidder aims to grow the company further, in our view. We do not expect DTTB to pose any immediate threat to the current FTA TV incumbents, but they may face some challenges in the mid-to-long term should they fail to defend their market share. There are no changes to our media companies’ CY13-CY14 earnings forecasts for now. We are reiterating our MARKET PERFORM calls on Astro Malaysia Holdings (ASTRO, TP: RM3.14); Media Chinese International (MEDIAC, TP: RM1.19), and Star Publications (STAR, TP: RM2.41). Our UNDERPERFORM rating on Media Prima (MEDIA, TP: RM2.60) remains unchanged.

DTTB award is due to be announced. MCMC has short-listed three bidders for the DTTB project – (i) Puncak Semangat S/B (P.S.), (ii) Redtone Network S/B (RN), which is 49% owned by Redtone International Bhd (OP, TP: RM0.81), and (iii) I-Media Broadcasting Solutions S/B after the first round of evaluation in June 2013. Subsequently, the three bidders have submitted their respective detailed business plans for a final round of evaluation, and the result is expected to be announced in the 4QCY13. We understand that the 15-year DTTB contract value is estimated at RM1b based on earlier press report but may potentially be valued higher should more advanced technology is used. We also understand that Malaysia is targeting to be off the analogue system by late 2015.

A new media company in the making? Based on our understanding a CIIP will be built after the final successful bidder is announced. The CIIP will be performed the function as the DTT Multiplex service Provider (DMBH) and DTT network Facilities Provider to serve the contents and applications service providers. The successful DTTB applicant will be awarded an Apparatus Assignment to function as a CIIP to design, build, operate and maintain DTT infrastructures. In order to grow the CIIP further and enhance its operational as well as financial efficiency, we do not discount that the CIIP may seek public funding in the near future.

Policy frameworks already in placed. While the DTTB bidding process has yet to be concluded, the project’s policy frameworks (i.e. migration policy; standards and receiver specifications; implementation and migration plan; and etc.) are already in place. We understand three multiplexer will be available immediately, which will allow the CIIP to provide up to 45 Standard-Definition or 15 High-Definition channels during the initial stage, according to MCMC. Broadcasters will need to lease the access and bandwidth from CIIP with rates that are not expected to exceed the current rates. Nevertheless, should more technical infrastructures (i.e. statistical multiplexing, channel combining; co-location of transmitters and etc.) are used the cost per channel for DTT is envisaged to be more competitive.

Potential beneficiaries. We believe both PS and RN have fairly higher chances to seal the award, albeit the final evaluation process of the DTTB project has yet to be concluded, judging from their respective financial strength, rich industry knowledge and experiences as well as strong shareholders support. Meanwhile, Telekom Malaysia (TM, OP, TP: RM5.94) could also stand to benefit, to a certain extent, given that the group has the most extensive number and wider coverage of transmission sites in the country. With more FTA channels likely to be introduced under the DTTB this could provide an additional revenue stream in the future. 

Source: Kenanga