CGS-CIMB reiterates ‘overweight’ call on media, with Astro and Media Prima its top picks

CGS-CIMB reiterates ‘overweight’ call on media, with Astro and Media Prima its top picks
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KUALA LUMPUR (March 21): CGS-CIMB Research has reiterated its overweight rating on the media sector, saying political risks have already been priced in, given the sector's battered valuations.

And while the research house acknowledges that news producers are still vulnerable to political risks, it believes such risks have diminished as lawmakers realised it has become impossible to control mainstream media coverage in the digital age.

“The one-sided reporting is gone, based on our observation, with legacy news producers now providing coverage to ‘Opposition’ politicians too. From both the fundamentals and ESG [environmental, social and governance] standpoint, we argue that the sector is severely undervalued,” said CGS-CIMB Research analyst Kamarul Anwar in a note Monday (March 21).

Having said that, the analyst believes some of these legacy news producers still face a trust deficit, even though editors and media executives claim there is some degree of editorial independence today.

"There is always a risk that journalists will self-censor to avoid incurring the wrath of lawmakers, as the archaic free-speech and media laws remain at the government’s disposal. And this could turn off readers, who are already spoiled for choice by digital news outlets. Hence, our media sector ESG favourites are those that have heavy exposure to entertainment and visual media," he wrote.

As such, he said CGS-CIMB's top picks are Astro Malaysia Holdings Bhd (add; target price RM1.45) and Media Prima Bhd (add; TP: 96 sen). These are also their preferred stocks when it comes to fundamentals.

"Since the lifting of Malaysia’s movement control order (MCO) in October 2021, advertisers’ appetite for television advertising is picking up, judging by the 14.2% y-o-y jump in free-to-air (FTA) advertising sales prior to discounting factor (source: Nielsen Malaysia). We project the two broadcasters under our coverage, Astro and Media Prima, to deliver CY21-23F EPS CAGRs of 5.8%-17.7%.

"Astro’s and Media Prima’s news arms contributed only 0.9%-14.4% revenue to their parents’ consolidated revenue in CY19-21, which should reduce their earnings risks from political-related ESG issues," he wrote.

On the other hand, Kamarul Anwar said CGS-CIMB is concerned that the longer-term earnings performance of Star Media Group Bhd (add; TP 42 sen) and Media Chinese International Ltd (add; TP: 21 sen) may still be at risk from Malaysia's strict free speech laws.

“Since Pakatan Harapan’s ejection from the government in March 2020, activists and whistleblowers have been served with lawsuits and interrogated by the authorities. A catalyst for these stocks should come when they diversify their businesses. Star is vying for a digital banking licence, while MCIL has a holiday tour agency that can be back in business, once Covid-19 travel restrictions are lifted globally,” he added.

Tan Choe Choe