Not overly concerned with Netflix’s arrival

Netflix was launched in Malaysia on 7 Jan 2016. We doubt that it will change the Malaysian TV competitive landscape going forward. First, popular vernacular content is lacking. Second, it is not as cheap vis-à-vis Pay TV in Malaysia as it is in the United States. Third, there is still demand for live content and incumbents are introducing their own products that are similar to Netflix. Maintain BUY calls on MPR and MCIL.

Netflix has arrived but vernacular content lacking

The leading subscription video on demand (SVOD) product from the United States, Netflix, was launched in Malaysia on 7 Jan 2016. Questions arose as to how it will change the Malaysian TV competitive landscape. Contrary to popular belief, Malaysians prefer vernacular content over English ones by far. We established our own Netflix accounts, searched for vernacular content, but found that they were lacking.

Value proposition by Netflix not strong in Malaysia

With Netflix priced at only USD8 p.m. in the United States, we estimated that Pay TV is 15 times more expensive than Netflix there. That said, with Netflix priced at MYR33-MYR51 p.m. in Malaysia, Pay TV is only two to three times more expensive than Netflix here. Therefore, the value proposition made by Netflix in Malaysia is not nearly as strong as the one in the United States.

Incumbents still relevant AND evolving

Despite Netflix’s phenomenal growth over the last five years, we note that it did not draw subscribers away from US Pay TV operators or cause their ARPUs to fall. This is because the latter offers live content (e.g. sports and news), while NetFlix does not. Some US Pay TV operators even launched their own SVOD products to compete with Netflix. In Malaysia, ASTRO launched its own SVOD product known as ‘OD’ in Oct 2015.

Maintain BUY on MPR & MCIL and HOLD on ASTRO

We do not believe that the arrival of Netflix in Malaysia will change the Malaysian TV competitive landscape due to its lack of vernacular content and weak value proposition. We also opine that there is demand for the incumbents’ live content. Therefore, we reiterate our BUY calls on MPR and MCIL for their attractive valuations of <11x PER and high dividend yields of >5%. For ASTRO, we maintain our HOLD call as we estimate that downside risk will be limited to just 8% even if net Pay TV additions stall.

Source: Maybank Research - 18 Jan 2016