We maintain our media sector’s call at OVERWEIGHT. Adex in 3QCY21 was mainly below expectations with STAR being the only media player to perform above expectations. High content costs due to airing of sporting events dragged down ASTRO’s normalised profits whereas the nationwide lockdown in 3QCY21 negatively impacted MEDIA and MEDIAC’s adex. With lockdowns out of the picture in 4QCY21, we believe this will help to boost advertisers’ marketing budget for the quarter. Moreover, World Bank is projecting Malaysia economy to recover by 5.8% in 2022 on the back of stronger domestic demand; thus, this will further spur demand for advertisements. MEDIA’s Omnia segment which has performed greatly since its launch in 2QFY20 due to its integrated marketing nature would reap significant benefit from the rise in adex as the group command a lion’s share in the FTA-TV market which is currently the leading traditional platform in the adex industry. All in, we maintain ASTRO (OP, TP: RM1.07) and MEDIA (OP, TP: RM0.560) as our top picks. We like ASTRO for its attractive dividend yield of 7.7%, and taking progressive steps in fulfilling their ambition to be the country’s top OTT aggregator, and an ISP as well. As for MEDIA, it is due to improved margins as a result of cost cutting exercises in the broadcasting and publishing segments in FY20.

3QCY21 reporting season came mainly below expectations. STAR was the only media player that performed above our expectation after adjusting for the one-off reversal of compensation income of RM50.5m which was awarded in FY20 from the legal case with JAKS. On the other hand, MEDIA and MEDIAC came in below due to an overestimation of advertising sales whereas ASTRO's negative deviation was caused by higher content costs in 2QFY22 as a result of the airing of EURO and Tokyo Olympics sporting events.

4QCY21 adex to have better prospects than 3QCY21. Based on the total gross adex data gathered by Nielsen for 3QCY21, it shows a 3.3% drop QoQ as majority of segments, for instance newspapers and radio saw a drop of 22% and 29%, respectively, whereas free-to-air television (FTA) adex remained flattish (-0.2%); thus, not contributing much to overall adex. A decline in QoQ adex was not surprising as the national lockdown in 3QCY21 inhibited businesses from operating at optimal level, requiring them to preserve cash at a most crucial time. With the relaxation of SOPs and lockdowns in 4QCY21, we believe 4QCY21 will prove to be a better quarter for the media players as non-traditional segments like newspapers, billboard marketing and radio will see more advertisement spend from businesses.

Economic reopening. The World Bank expects the Malaysia economy to recover by 5.8% in 2022 which will predominately be driven by strong domestic demand and continued growth in exports. As domestic demand strengthens, we expect businesses to follow suit in increasing marketing budget for their products and services; thus, bumping up adex moving forward. We believe this will greatly benefit MEDIA due to the group’s integrated marketing approach which makes it convenient for businesses to advertise on multiple platforms via a single channel. Moreover, as FTA-TV continues to hold a major chunk in the adex industry, we believe MEDIA will also continue enjoying the recovery in adex as the group holds c.75% of FTA-TV adex based on Nielsen’s findings.

Sector’s call is maintained at OVERWEIGHT. Moving into 2022, we expect a better adex outlook as businesses return to operating at optimal levels coupled with the strong domestic demand which would encourage more advertising activities. All in, we continue to like ASTRO (OP, TP: RM1.07) for its attractive dividend yield of 7.7% and staying on track with of becoming an OTT aggregator of 15 SVODs and ISP by FY23 and MEDIA (OP, TP: RM0.560) for improved margins thanks to the recent cost optimisation exercises.

Source: Kenanga Research - 28 Dec 2021