KUALA LUMPUR (Jan 15): Hong Leong Investment Bank (HLIB) Research has maintained its "underweight" call on the media sector, given the prolonged advertising expenditure (adex) weakness that growth in the digital segment has not been able to offset.

In a sector note today, HLIB said despite the two major sporting events, EURO and Tokyo Olympics, which will be held in 2020, it is not optimistic the events will be sufficient to arrest the adex downtrend.

It noted that over the years, media companies have geared towards strengthening their digital presence but the bottom line contribution is still not meaningful given the longer gestation period.

"However, the efforts are positive in capturing the digital adex share as advertisers are increasingly moving into the digital space," it said.

HLIB expects Media Prima Bhd and Astro Malaysia Holdings Bhd's home shopping to register positive earnings before interest, tax, depreciation and amortisation (EBITDA) by the end of 2020.

As the battle for local over-the-top (OTT) intensifies with the introduction of various providers, HLIB said it will pose as a challenge to Astro boosting its AstroGo's subscriber base, which is currently at 2.4 million.

The research house also expects continuous efforts on reducing operational expenditure as these strategies are crucial for media companies, given their flattish/declining top line.

With the exception of Media Prima, HLIB believes that no major cost cutting exercise, such as mutual separation scheme or voluntary separation scheme (VSS), is on the cards as most have already undertaken it.

According to the research house, Media Prima will launch another round of VSS to trim further a sizeable share of its circa 3,900 employees this year.

"The strengthening of the US dollar will not bode well for earnings especially during major sporting events," HLIB said.

It expects Astro's content to account for as high as 37% of revenue, which is the level it witnessed during FY19 (from World Cup 2018).

"While for free-to-air (FTA) television, this should not be a significant issue as the bulk of its content is local based," the research house said.