Recovery still far ahead for media industry
KUCHING: Despite two major sporting events that will be held in 2020, Malaysia’s media sector still faces many challenges as it shifts from its traditional medium to digital.
The research team at Hong Leong Investment Bank Bhd ( HLIB Research) said despite major sporting events in 2020, it foresees no end to the earnings woes due to the structural shift from traditional to online media.
“In addition, the earnings contribution from digital segment is still lagging and yet to cushion the falling traditional revenue,” it said in a note.
Of note, 2020 will witness two major sporting events; EURO and Tokyo Olympics.
“Despite so, we are not optimistic that the advertising expenditure (adex) friendly events will be sufficient to arrest the adex downtrend,” HLIB Research opined.
It recalled that during the World Cup 2018, adex dipped by 7.3 per cent year- on-year (y- o-y), led by the print segment.
“In addition, both consumer and business sentiment have been down trending post GE14 ( below the 100 threshold) and this may further drag ad spending,” it added.
As for the shift to digital, HLIB Research noted that while media companies have, over the years, geared towards strengthening their digital presence, the bottom line contribution still not meaningful given longer gestation period.
“However, the efforts are positive in capturing the digital adex share as advertisers are increasingly moving into the digital space.
“We expect Media Prima and Astro’s home shopping to register positive earnings before interest, tax, depreciation, and amortisation ( EBITDA) by end2020,” it opined.
On the digital spectrum, HLIB Research also pointed out that the battle amongst over-the-top services (OTTs) is intensifying with the introduction of new providers, namely Disney+ and Apply TV ( both likely to enter Malaysia this year) to compete with Iflix, Netflix and AstroGo.
“This will pose a challenge for Astro to boost its subscriber base for AstroGo (currently at 2.4 million). Cost savings mode. We expect continuous efforts on reducing opex as these strategies are crucial for media companies given their flattish/declining top line.
“However, with the exception of Media Prima, we believe that no major cost cutting exercise ( MSS/ VSS) are on the cards as most have already undertaken it.
“Media Prima will launch another round of VSS, to trim further a sizeable share of its circa 3,900 employees this year,” it opined.
Aside from that, the strengthening of US dollar does not bode well for earnings especially during major sporting events.
“We expect ringgit-to- dollar to average 4.15 to 4.20 in 2020 compared with 2019 at 4.14. We expect Astro content cost to account as high as 37 per cent of revenue, a level witnessed during FY19 (from World Cup 2018).
“While for FTA-tv, this should not be a significant issue as the bulk of its content is local based,” the research team added.
All in, HLIB Research reiterated its ‘ underweight’ rating on the sector given its bleak prospects.