Media sector
Maintain underweight: Media sector revenue (excluding Astro Malaysia Holdings Bhd) fell 16.3% year-on-year (y-o-y) to RM543.5 million from RM649.3 million in the first quarter of 2018 (1Q18). Most segments (print, free-to-air television and radio) saw a dip y-o-y which we believe was partially due to a normalising effect after coming off an advertisement expenditure (adex)-supported year in 2018 (presence of Malaysia 14th general election), in addition to already-cautious advertisement spending.

In tandem with top-line contraction, the sector suffered core losses in 1Q19 with Media Chinese International Ltd (MCIL) and Media Prima Bhd (MPR) in the red while Star recorded a slim core profitability. 1Q19 results at all three of these companies were below our expectations, with variance to our forecasts coming from lower-than-expected contribution from most segments (MPR, Star) and higher-than-expected operational costs (MCIL).

Media companies have over the years geared towards strengthening their digital presence to complement their existing assets. The initiative has so far been positive in capturing the digital adex share as advertisers are increasingly moving into the digital space.

For Astro and MPR, home shopping sales have been promising, both achieving a strong y-o-y revenue growth of 16.6% and 23.7% to RM98.8 million and RM54.5 million, in their latest quarter respectively. We now expect MPR and Astro to achieve positive earnings before interest, taxes, depreciation, and amortisation end-2020.

Given the persistent challenging operating environment, we maintain our “underweight” rating for the media sector. While we expect media players to continue strengthening their new revenue streams, and continual cost rationalisation efforts, a turnaround may prove difficult in view of the unfavourable conditions in the industry.

At this juncture, we have “sell” ratings on Star, MPR and MCIL, while Astro is a “hold”. For relative exposure, Astro is our preferred pick while MPR is our top “sell” for the media sector given the lack of immediate catalyst and a subdued adex sentiment affecting both its print and TV segments. — AffinHwang Capital, June 14