We maintain the media sector’s call at NEUTRAL. As lockdown continues in Malaysia, this will negatively impact the adex industry and media players. Though companies like Astro that have a subscription-based model will not be largely affected by the drop in adex, the group may continue to face a steady decline in subscriber base. To tackle the drop in adex and subscriber base, media players are diversifying into new areas to gain new revenue streams on top of their traditional platforms. Moreover, with the government ramping up vaccinations by getting participation from private institutions such as private hospitals and clinics, the country should be able to reach herd immunity by December 2021. Hence, we believe media players will start to recover in 4QCY21. While we continue to like ASTRO (MP, TP: RM1.20) for its attractive dividend yield and recent successful partnerships with top OTTs such as Netflix and Disney+ Hotstar, capital upside is limited following an impressive price run-up in the 2QCY21. Following its recent turnaround in earnings and three consecutive quarters of profitability, MEDIA (MP, TP: RM0.690) is our media pick for those who need to stay invested in the media sector.

1QCY21 weaker than expected. The latest reporting season showed a majority of the media players performing weaker than expected except for ASTRO which came in within expectations. As MCO was re-implemented in 1QCY21, media players were once again adversely impacted with advertising revenue falling QoQ. It is noted that ASTRO’s higher EBITDA margin and significantly lower financing costs bumped up the group’s core PATAMI by 37% YoY. However, with movement restrictions, the group’s advertising sales fell by 16% QoQ along with the ongoing decline in subscription revenue (-3%) which resulted in lower revenue. Despite MEDIA coming in below expectations as advertising sales dropped, the group managed to remain in black thanks to the cost measures taken by the group in FY20.

Weakness in adex industry to persist in 2QCY21. Based on the performance of the media players, industry 1QCY21 adex was negatively impacted which was due to the reimplementation of MCO that diminished adspend. It is noted that ASTRO’s QoQ FTA advertising revenue declined by 21% and radio advertising revenue fell by 7% whereas MEDIA’s overall ad revenue dipped by 22%. The adex industry is very much correlated to the economy, thus with businesses closed and cutting down on marketing as well as consumers holding back on spending in times of crisis, this will continue to negatively impact the adex industry. With MCO 3.0 implemented from 7 May 2021 till 31st May 2021 and Phase 1 of FMCO from 1 June 2021 till presently (until cases fall below 4,000 per day), we opine that the weakness in the adex industry will persists in 2QCY21 which may very well flow to 3QCY21. Meanwhile, print distribution could once again be dragged, as in 2020 during MCO 1.0 as physical sales were highly limited by movement restrictions.

Diversifying to boost income. Media players are diversifying into other platforms to gain revenue from new businesses. Astro which is the only media player in our coverage that does not rely heavily on ad revenue for income thanks to their subscriptionbased model is aiming to become the largest aggregator of the best global and local streaming services by getting 15 SVODs services by early 2023. With that said, ASTRO may benefit through subscriber retention and new subscriber acquisitions which would help the group greatly as its subscriber base is currently moving in a downtrend. Furthermore, following the employment of STAR’s new CEO, Alex Yeow who has experience in property development, it is planning to diversify into new businesses such as property and digital assets as currently the group relies heavily on its print segment (70%) for revenue.

Sector’s call maintained at NEUTRAL. As the government plans to continue with the Phase 1 of FMCO indefinitely until cases fall below 4,000, we believe this will continue to drag down revenue for the adex industry and print sector, thus, negatively impacting the media sector. However, with the government working on ramping up efforts to achieve herd immunity by December 2021 by setting up more vaccination centres, involving private hospitals and clinics in the vaccination programme, we believe that 4QCY21 onwards will offer a better outlook for the media players. ASTRO (MP, TP: RM1.20) offers attractive dividend yield of 7.2% and successful partnerships with top OTT platforms such as Disney+ Hotstar and Netflix which will help to bump up the group’s subscriber base but we rate it MP due to limited capital upside after a fine price run up in 2QCY21. That said, we remain cautious of the content cost owing to global sporting events like Tokyo Olympics 2020 and Euro 2020, if they continue as scheduled. Moreover, MEDIA (MP, TP: RM0.690) could be a decent pick for those who need to stay invested, for the recent turnaround in its earnings and being able to maintain profitability for three quarters consecutively thanks to operating expenses control measures taken earlier

Source: Kenanga Research - 5 Jul 2021