KUALA LUMPUR (Dec 24): TA Securities Holdings Bhd has maintained “underweight” on the media sector as it expects media companies under its universe (comprising Astro Malaysia Holdings Bhd, Star Media Group Bhd and Media Prima Bhd) to continue struggling with the on-going structural shift in media consumption.

In a note released today, TA Securities said it expects the climate for traditional advertising expenditure (adex) to remain weak in 2020 as there are still no signs of it bottoming out in 2019.

“Against this backdrop, we continue to foresee downside risk to companies like Star Media and Media Prima as they are still heavily reliant on traditional adex, which accounts for approximately 2/3 of their revenue primarily via the print (for Star and Media Prima) and television (for Media Prima) media,” it said.

Astro, on the other hand, should be less susceptible to the adex woe as traditional adex only accounts for about 12% to 13% of its revenue while the bulk of it comes from subscription to its Pay-TV services.

The research house also expects the Pay-TV market to remain challenging due to the proliferation of over the top (OTT) services such as Netflix, iflix and dimsum and also the widespread availability and consumption of pirated content, both fuelled by the increasing affordability and speeds of internet in Malaysia.

“That said, we believe that Astro should continue to have a strong footprint in Malaysian households in the years to come, underpinned by its niche in the creation of vernacular content, which gives it an edge against competition,” TA Securities noted.

TA Securities stated that to cushion the pressure at the top line, stressing on the media companies that are still reliant on traditional adex, would be more inclined to pursue mergers and acquisitions as new ventures embarked on to embrace the digital era may take time to scale and contribute meaningfully to the bottom line.

It also does not discount the possibility for further cost rationalisation and divestment exercises within the sector to safeguard the sustainability of operations in the near-to-medium term.

As for divestments, the research house does not think companies like Star Media and Media Prima would consider disposing their traditional print business despite the rise of online news.

It believes that online news has a strong presence on both traditional and digital platforms offer customers a stronger value proposition and furthermore, content via print generally garners more trust.

The research house has a “buy” call on Astro with a target price of RM1.80 and “sell” call on both Star Media (TP: 45 sen) and Media Prima (TP: 22 sen).