We upgrade our media sector’s call to OVERWEIGHT from NEUTRAL as we believe the media players are set to benefit from the easing of movement restrictions. Adex had a mixed impact on the media players in 2QCY21 as overall ASTRO adex declined by 9% QoQ. However, MEDIA on the other hand saw an adex increase of 24% QoQ. With the gradual easing of Covid-19 SOPs for fully vaccinated individuals and the reopening of the economy in 3QCY21, we believe media players should post better comparative results in the second half, primarily in 4QCY21. Aside from adex fluctuations throughout the pandemic, segments shunned in CY20 could make a comeback; for instance, STAR’s events and exhibition revenue plunged by 73% YTD in FY20 due to movement restrictions and strict Covid-19 SOPs. Therefore, as the SOPs ease, we believe this will gradually spur recovery demand in such segments moving forward. Moreover, Astro Productions and Primeworks Studios stand to benefit from the resumption of film production, thus improving the groups’ content creation segments. All in, we continue to pick ASTRO (OP, TP: RM1.22) and MEDIA (OP, TP: RM0.690) as our top picks. We like ASTRO for its attractive dividend yield of 7.6% and taking progressive steps in fulfilling their ambition to be the country’s top OTT aggregator. As for MEDIA, it is due to improved margins as a result of cost cutting exercises in the broadcasting and publishing segments in FY20.

2QCY21 came in mixed. The sector’s recent results season came in mixed with two media players, MEDIA and STAR, performing within expectations while MEDIAC and ASTRO came in below expectations. Thanks to higher advertising revenue in 2QFY21, the revenue from Omnia rose by 220% which helped bump up MEDIA’s revenue by 15% YTD. In tandem with the increase in revenue, the group’s PATAMI jumped by 149% YTD and 101% QoQ. On the other hand, due to Astro’s high content costs as a result of the airing of the Euro and Tokyo Olympics sporting event, its EBITDA margin fell by 0.5ppt YTD. Despite the high content cost and lower subscription revenue plus merchandise sales, the group managed to register a higher PATAMI (+9%) YTD as the lower EBITDA was offset by lower depreciation expenses and net financing costs.

3QCY21 adex to perform better than 2QCY21. Based on the performance of the media players, 2QCY21 adex had a mixed impact on the media players. ASTRO saw a 9% decrease in total advertising (-24% in radex and no change in TV adex) whereas MEDIA saw a 24% increase in adex (+30% in broadcasting, +16% in digital media and et cetera). This could possibly be due to MEDIA taking a more integrated marketing approach for advertisers through the group’s newly launched segment, Omnia, in 2QFY20; thus, making it more convenient for advertisers to market on varies platforms with ease. Moreover, thanks to higher vaccination rates and reduced Covid-19 cases in certain states, the movement restrictions are easing for fully vaccinated individuals beginning August 2021. With that said, we believe this to be a positive indication for all media players as greater movement, human traffic and overall private consumption could signal a return in traditional physical advertising platforms (i.e. print, billboard marketing), spurring the recovery in the overall media industry.

Relaxation of SOPs. With the SOPs being relaxed for the creative industry this allows the resumption of film production which would benefit both Astro Productions and Primeworks Studios, therefore, helping to bump up their respective content creation segments moving forward. In the case of ASTRO, the group’s adex is very closely related to its vernacular content, thus, with the reduction in the production of vernacular programmes this in turn had resulted in a drop in adex. Therefore, the resumption of filming will also boost ASTRO’s adex. Additionally, we believe with the easing of SOPs, STAR’s event and exhibition segment which contributed c.5% to the group’s revenue pre-Covid and is currently registering c.1% growth may begin to recover in 2HCY21. This could soften the losses in its print and publication business.

Sector’s call is upgraded to OVERWEIGHT from NEUTRAL as the economy begins to gradually reopen in 2HCY21 thanks to higher vaccination rates and reduction in Covid-19 cases. We believe this will positively impact the media players moving forward thus making this sector a strong contender for a recovery play. All in, we continue to like ASTRO (OP, TP: RM1.22) for having an attractive dividend yield of 7.6% and moving in line with its aim of becoming an OTT aggregator of 15 SVODs by FY23 and MEDIA (OP, TP: RM0.690) for improved margins thanks to the recent cost optimisation exercises.

Source: Kenanga Research - 1 Oct 2021