The Edge Markets: Worst for media sector likely over, says HLIB Research
KUALA LUMPUR (Jan 6): Hong Leong Investment Bank (HLIB) Research foresees the worst is likely over for the media sector following the easing of pandemic restrictions and the economy reopening.
In a note on Thursday (Jan 6), its analyst Tan Kai Shuen believes that a full lockdown can be averted going forward, which will help to pave the way for a more sustainable recovery path for the media industry.
He said Malaysia is also now on a stronger footing to better manage Covid-19 given a wider array of tools at its disposal such as inoculation of adolescence, booster shots and pills for the disease.
“As leading indicators such as the improving consumer and business sentiments, and projected economic growth for Malaysia are pointing towards a brighter advertising expenditure (adex) outlook, we believe investors should take this opportunity to nibble in the sector while valuations are still undemanding,” he said in a note on Thursday.
Based on a Nielsen report, Tan said for the first 10 months of 2021 (10M21), adex grew by 17.9% year-on-year (y-o-y) — mainly led by the free to air (FTA) segment.
“The segments that dragged the overall adex recovery in 10M21 were those that were most impacted by the lockdown, that is newspaper, magazine and cinema.
“Notably, FTA television (TV) remained resilient in 2021 as advertisers preferred FTA TV due to its wider audience reach as people spent more time at home during lockdown,” he said.
Tan further noted that the Malaysian Institute of Economic Research (MIER) consumer sentiment index (CSI) recorded 101.7 points in last year’s third quarter (3Q21), a vast improvement compared sequentially and over the same period last year.
He said the CSI also crossed the 100-point optimism threshold for the first time since 3Q18, indicating consumer optimism following the easing of Covid-19 movement restrictions.
On the other hand, Tan said the MIER business condition index (BCI) recorded 97 points in 3Q21, indicating a recovery in business sentiment following the gradual resumption of economic activities as restrictions ease.
The improvements in both CSI and BCI, he said, are positive indications of an economic recovery, which should bode well for adex spending ahead.
Meanwhile, Tan viewed the local media sector as under a structural decline where the traditional media pie size diminishes as the TV, print and radio segments face competition from new media such as streaming services and online news portals, while advertisers are also reallocating their ad spend towards Facebook and Google.
“Further aggravating this are Covid-19-impacted segments most vulnerable to lockdown restrictions, that is newsprint, radio and event, while pay-TV subscription and home shopping revenues were also adversely impacted by the lower household dispensable income,” he added.
Nonetheless, Tan observed positive efforts were taken by the media players to arrest the decline in earnings.
This include cost rationalisation efforts, integrating and streamlining advertising solutions, disposal of loss making units, strengthening digital media segments as well as rolling out new product initiatives that cater to the shift in media consumption preferences, he explained.
To this end, HLIB Research has upgraded its call on the media sector to “overweight” from “neutral” previously, with the firm’s top picks for the sector being Astro Malaysia Holdings Bhd, having a “buy” call and target price (TP) of RM1.40 on the stock, and which is currently providing an attractive dividend yield at more than 7%.
In addition, the research firm also likes Media Prima Bhd as its other top pick for the media sector having given a “buy” call and TP of 61 sen on the stock.
This article was originally published at https://www.theedgemarkets.com/article/worst-media-sector-likely-over-says-hlib-research
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