KUALA LUMPUR (July 20): Hong Leong Investment Bank (HLIB) Research said it had upgraded its rating for the media sector to "neutral" due to a possible digital advertisement expenditure (adex) expansion, premised on the back of increasingly digitally-oriented consumers and more attractive package offerings.

In a note today, HLIB Research analyst Syifaa’ Mahsuri Ismail said as traditional adex still outweighs digital adex, the research house believes peers under their coverage still need to endure the hit from digital disruption and wait for significant earnings improvement from their own digital ventures despite a proactive strategy to increase their online presence.

“However, we believe the bottom has yet to be seen given that traditional media still form the lion’s share of the industry’s contribution.”

Syifaa said since the movement control order (MCO) was implemented, the research house expects the media industry to flourish with a spike in television viewing and with people glued to news portals for updates regarding the development in the number of active cases.

She said figures did align with this assumption as Astro Malaysia Holdings Bhd said its viewership hours had climbed significantly by 11.5% year-on-year (y-o-y), while its average daily viewers increased by 4.1% y-o-y.

Media Prima Bhd's Ripple also garnered a total of 1.9 million digital listeners, a 30% increase during the MCO period.

However, Syifaa said the rise in hours did not translate to a revenue increment because there was a decline in adex spending by advertisers.

“The biggest drag came from the usual suspects, with adex declining in print (59% quarter-on-quarter or q-o-q) and radio (57% q-o-q). Although TV adex was backsliding, it was relatively softer than the rest (20% q-o-q). However, it was still the biggest chunk of the pie with a 68% contribution of total adex during March to May 2020.”

In the others division, the 77% dive q-o-q was due to cinema closures during the MCO and CMCO periods, she added.

Aggregately, HLIB Research expects the declining trend to persist for the remainder of the year on the back of a dire adex environment, moderating private consumption and magnified digital disruption as Internet services become more accessible.

Media companies’ bottom line will likely be strained on the back of a downturn economic outlook with advertisers turning cautious about their spending, pay TV and home shopping being hit by consumer cuts in discretionary spending and newspaper circulation being halted with accessible news from online media, she added.

“With the aforementioned reasons, we forecast media companies’ earnings to continue to be beleaguered for the remainder of 2H20 (second half of 2020).”

The research house’s companies in focus include a "hold" rating for Star Media Group Bhd and Media Prima with a target price (TP) of 41 sen and 17 sen respectively as both are trading below their net cash per share. 

Astro is only the top pick for the sector with a "buy" rating and TP of RM1.15 due to it reaping the benefits of cost savings following the deferment of major sports events and an attractive dividend yield of 8.1%.

As at 9.45am, Astro remained at 81 sen, with a market capitalisation of RM4.2 billion. The stock saw some 95,400 shares traded.