Media sector
Maintain underweight: While the Consumer Sentiment Index has improved since the first quarter of 2017 (1Q17), this failed to spur total advertising expenditure (adex) (excluding digital and pay TV), which continued to dwindle since 2015 (-17% year-on-year in the first half of 2018 [1H18]). The subdued adex spending linked mostly to the moderation in print media (-17.6% in 1H18), which was hurt by ailing circulation trends. Moving into 2019, we expect adex to remain challenging due to moderating private consumption and the absence of adex-friendly events.

We expect more pressure to be seen in the print segment due to declining circulation (-21.5% in 1H18) that has shifted to digital-based segment. We opine that the cost cutting measures will not be sufficient to mitigate the falling revenues. To add to the woes, we estimate that the ringgit will weaken against the US dollar in 2019, and newsprint players have 30% of total print cost in ringgit.

While the growth in digital revenues has been promising, we believe the digital-platform media have yet to translate it into significant earnings contributions and require a long gestation period before they break even and become the regular earnings contributors. We believe that despite the promising growth, the small earnings base for digital platforms is not sufficient to mitigate the declining revenues from traditional media platforms.

Recent news reported the possibility of restructuring the ownership structure of media companies by limiting the shareholding of political parties and other entities to 10%. This move is to ensure the view from media is free from political bias and maintains press freedom.

Facebook has won the rights to stream Premier League from 2019 to 2022 in neighbouring countries like Cambodia, Laos, Thailand, and Vietnam. In the longer term, we do not discount the possibility of the same exercise in Malaysia.

Turning to digital platforms like Facebook can help Premier League maximise viewership as consumers increasingly shun pay TV. According to The Times, the Premier League has also held talks with YouTube and Netflix over rights deals.

Despite media companies facing cash constraints, we discount the possibility of significant asset unlocking activity. We believe the soft property market will slow down land and building sales given the recent rise in real property gains tax.

We only expect more cost rationalisation activities via mutual separation schemes (for Star Media and Media Prima) and renegotiation of content costs for Astro.

Despite the challenging issues, we like Astro as a dividend play with its attractive yield of 7% in 2019 with payout of 85%. For Star Media, we project the yield of 8.3%. We do not expect Media Prima to deliver any dividend given its challenging business environment.

We believe the sector will remain lacklustre, given the weakness in print segment and declining adex on traditional platforms.

In addition, consumer habits are fast gravitating towards the digital space while Malaysian media players are slow to migrate from the traditional to digital space. We maintain “underweight” view on the sector. Our only “buy” call is on Astro Malaysia Holdings Bhd, mainly for its attractive dividend yield of 7%. — Hong Leong Investment Bank, Jan 15