We maintain NEUTRAL on the sector. 2QCY22 saw a sequential deterioration of results (against expectations) as a majority of the stocks under our coverage fell short. While players saw some recovery in the topline of traditional media channels, overall earnings growth remained muted as contraction in other segments offset the reopening of the economy. We continue to expect a slow road to recovery looking forward given the limited growth of traditional media channels as advertisers continue to trend towards digital media. Overall, we continue to like MEDIA (OP; TP: RM0.64) for its integrated approach to advertising via Omnia, and improved cost rationalisation.

2QCY22 results missed expectations. 2QCY22 saw 25%/75% of media companies under our coverage coming in above/below our expectations, a sequential deterioration vs. 25%/50%/25% above/within/below expectations last quarter (see table on page 2). Out of the 4 companies under our coverage, STAR (MP; TP: RM0.335) continued to beat expectation as strong cost optimisation led the group to profitability for a second quarter in a row. The remaining (namely ASTRO, MEDIA and MEDIAC) fell short of expectations. ASTRO (MP; TP: RM1.00)’s viewership continued on the downtrend as its subscriber base contracted 2.1%. MEDIA (OP; TP: RM0.64) actually showed better demand for its TV and radio broadcasting as revenue for the segment grew 6.1% QoQ. Overall, earnings for the group more than doubled QoQ (+162.4%) on continued cost rationalisation and stronger advertising revenue from the broadcasting segment. MEDIAC (MP; TP: RM0.155) saw some recovery in the topline post-pandemic. However, the lifting of subsidies in its North American segment saw the region falling into losses and overall the group remained in the red for another quarter.

Key takeaways. 2QCY22 results showed that the transition to the endemic phase for the sector was difficult. Excluding ASTRO, media players did see recovery in demand for traditional media channels as groups recorded improved advertising revenue for their core segments (namely FTA TV, radio broadcasting and newspapers). However, these improvements were offset by certain negative effects from the lifting of pandemic regulations. Post reopening, both MEDIA and ASTRO reported large fall in revenue for home-shopping services (MEDIA: -44.4% YoY, ASTRO: -53.1% YoY) as shoppers returned to brick-and-mortar stores. MEDIAC, which enjoyed cost subsidies from multiple governments across its operating regions, is now being strained by those same costs as subsidies are lifted following the worldwide entering the endemic phase.

Recovery of in-person segments was also limited in 2QCY22. MEDIAC and STAR both saw negligible change in their travel and events segments and overall earnings contributions from said segments remained marginal. MEDIA saw some recovery in their out-of-home billboard advertising revenue (+8.8% QoQ), but overall the segment remained loss-making. The return to pre pandemic levels of performance for these segments still seems far out, given both advertising trends away from in-person media and, with regards to MEDIAC, stringent travel restrictions in China and Hong Kong.

NEUTRAL maintained for the sector. We expect the road to recovery for the sector to be long and winding given some of the transitory pains we have seen so far. We continue to like MEDIA (OP, TP: RM0.64) for its integrated approach to advertising via Omnia, which we believe offers better demographic targeting. 1HCY22 results for the group have shown both recovery in demand for advertising and broadcasting as well as strong cost rationalisation following the consolidation of their advertising divisions into Omnia. However, we remain wary of the rapidly contracting home-shopping segment given consumers have reverted towards in person shopping.

Source: Kenanga Research - 12 Sept 2022