Malaysia Media NEUTRAL (Unchanged)
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September 27, 2015 Malaysia Media NEUTRAL (Unchanged) The future is in High Definition Analysts Yin Shao Yang . TV digitalisation has kicked off and Malaysia must be ASO (603) 2297 8916 Malaysia ready by 2018 at latest. Viewers can expect HD channels, [email protected] | more TV channels, interactive services and mobile TV. Jade Tam . Beneficiaries are telcos and related industries, IT companies (603) 2297 8687 specialising in TV, payment and courier service providers, [email protected] game developers and new FTA TV channel operators. MPR may be negatively impacted but we believe this is already reflected in its share price. Maintain BUY on MPR. RESEARCH Astro may be negatively impacted too but not as severely. What’s New This is our maiden report / special feature on TV digitalisation. Puncak Semangat (PS; Not Listed) was awarded the concession, in SECTOR 2014, to build, operate and manage the necessary infrastructure for 15 years. Thereafter, PS transferred the concession to MYTV. MYTV has budgeted MYR4.5b to be expended over 15 years (MYR2.5b for opex and MYR2b for capex). The digital terrestrial TV broadcasting (DTTB) rollout commenced in Apr 2015 and Malaysia must be ASO (analogue switch off) ready by 2018 at latest. Viewers can expect HD channels, more TV channels, interactive services (e.g. news, VOD, games, T- commerce) and mobile TV. What’s Our View From the DTTB rollout, we foresee that telcos (Maxis, Digi, Axiata and TM), telco infrastructure fabricators (OCK, Instacom, Weida), IT companies specialising in TV (Digistar), payment service providers (ManagePay, GHL Systems, My E.G. Services), courier service providers (GDEX, Pos Malaysia), game developers (App Asia) and potential new FTA TV channel operators (Star) may benefit. Our estimates, calls and TPs for the newspaper companies (Star, MCIL) are unchanged. For MPR, we foresee that TV digitalisation will have a negative impact due to more competition. That said, we believe that there is little downside risk to its current share price as it is already trading at very close to NTA/share. Maintain earnings estimates, BUY call and MYR1.45 TP on MPR. For Astro, we foresee that TV digitalisation will have a slightly negative impact as the addressable market for it to expand may be cut to only ~500k subscribers. Even in that scenario, the downside risk to our scenario-based TP of MYR2.75 is only 5%. Maintain HOLD and MYR3.15 TP. For thematic investing, investors should focus on the potential beneficiaries from the DTTB rollout. Stock Mkt cap Rating Price TP Upside P/E (x) P/B (x) Dividend yld (%) (USD'm) (LC) (LC) (%) 15E 16E 15E 16E 15E 16E Astro Malaysia 3,446.7 Hold 2.88 3.15 9 28.8 22.2 21.6 21.6 3.8 4.5 Star Media Group Bhd 411.2 Hold 2.42 2.30 (5) 15.7 15.0 1.6 1.6 6.2 6.6 Media Prima 303.7 Buy 1.19 1.45 22 13.2 12.3 0.8 0.8 6.7 6.7 Media Chinese Int'l 205.7 Buy 0.53 0.65 23 6.2 7.7 1.2 1.0 6.5 5.2 SEE PAGE 33 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS PP16832/01/2013 (031128) Malaysia Media Contents Page Executive summary ............................................................................................. 3 TV digitalisation explained .................................................................................... 5 Motivations for TV digitalisation are economical .......................................................... 7 TV landscape will change dramatically The way forward with TV digitalisation ............................................................................... 8 Introduction to MYTV Broadcasting ................................................................................... 10 Salient details of MYTV business model .............................................................................. 12 The DTTB rollout in numbers Salient details of DTTB roadmap ...................................................................................... 14 2017 ASO a tall order but supportive policies likely ............................................................... 15 DTTB rollout will favour technological innovators ................................................................. 16 Adex and Pay-TV landscape will also change Adex share likely to migrate to FTA TV .............................................................................. 17 Pay-TV net subscriber additions likely to slow ...................................................................... 20 Potential impact to Media Prima and Astro Malaysia .............................................................. 21 Valuation and recommendation Little downside risk Media Prima share price, in our view ........................................................ 24 Astro Malaysia share price likely to be stable, we opine .......................................................... 26 Appendix 1 - Brief history of Malaysian TV .......................................................................... 27 Appendix 2- Current status of Malaysian TV......................................................................... 29 Appendix 3 – Glossary of technical terms ............................................................................ 31 September 27, 2015 2 Malaysia Media Executive summary The Malaysian Communications and Multimedia Commission (MCMC) has acknowledged that the high degree of frequency spectrum usage and inefficiency of analogue terrestrial broadcasting has limited the development of the Malaysian free-to-air (FTA) TV industry. For example, analogue broadcasting:- . only allows linear broadcasting, . does not support multi-channel sound, . is not compatible with mobile phones and other portable devices, . congests the frequency spectrums that could be utilised for other purposes, . requires high infrastructure costs that raises barriers of entry. The MCMC conceived the National Digitalisation Master Plan in 2004. The plan was to migrate the terrestrial TV broadcasting platform from analogue to digital. Puncak Semangat (PS) was awarded the concession to build, operate and manage the infrastructure for 15 years in 2014 following a tender in 2012. Digital terrestrial TV broadcasting (DTTB):- . supports high-definition (HD) resolution TV channels and multi- channel sound, . frees up frequency spectrums for more TV channels, . supports interactive services (e.g. news, VOD, games, T-commerce), . is compatible with mobile phones and other portable devices, . frees up frequency spectrums for 4G services such as LTE broadband. PS established MYTV Broadcasting (MYTV) to undertake the role of common integrated infrastructure provider (CIIP). Thereafter, PS transferred the concession to MYTV. MYTV commenced operations on Feb 2014 and has budgeted MYR4.5b to be expended over 15 years (MYR2.5b for opex and MYR2b for capex). The DTTB rollout commenced in Apr 2015 and Malaysia must be ASO (analogue switch off) ready by 2018 at latest. However, MYTV is targeting an earlier timeline for ASO by late 2016/early 2017. The threshold for ASO is 90% of the 7m Malaysian households adopting set-top-boxes (STB) or integrated digital tuner TVs (IDTV). The roadmap comprises:- (i) Phase 1 - Targets to cover 85% of the population, focusing on the East Coast of Peninsular Malaysia such as Kelantan, Terengganu and Pahang. Testing commenced in Apr 2015 with 20,000 set-top-boxes (STB) and the coverage is expected to be achieved by Oct 2015. (ii) Phase 2 – Targets to cover 98% of the population including the remaining states in West Coast of Peninsular Malaysia as well as East Malaysia. Testing commenced in Aug 2015 with 1,500 STBs and the coverage is expected to be achieved by Jul 2016. September 27, 2015 3 Malaysia Media From the DTTB rollout, we foresee the following potential beneficiaries:- . telcos (Maxis, Digi, Axiata and TM), . telco infrastructure fabricators (OCK, Instacom, Weida), . IT companies specialising in broadcasting (Digistar), . payment service providers (ManagePay, GHL Systems, My E.G. Services), . courier service providers (GDEX, Pos Malaysia), . game developers (App Asia) and . potential new FTA TV channel operators (Star). With wider coverage and more FTA TV channels (seven to 40) as a result of the DTTB rollout, we believe that FTA TV share of adex can only grow at the expense of other mediums especially print. That said, print adex share loss may not necessarily translate into print adex contraction as long as the total adex pie grows, going forward. For Media Prima (MPR), we foresee more competition from up to 33 new FTA TV channels. That said, we believe that there is little downside risk to its current share price as the stock is already trading at very close to NTA/share. We maintain our earnings estimates, BUY call and MYR1.45 TP on MPR. For Astro Malaysia (Astro), we foresee that TV digitalisation will have a slightly negative impact as the addressable market for it to expand may be cut to only ~500k subscribers. Even in that scenario, the downside risk to our scenario-based TP of MYR2.75 is only 5%. We maintain our earnings estimates, HOLD call and MYR3.15 TP on Astro. September 27, 2015 4 Malaysia Media TV digitalisation explained Digital versus analogue signals explained. Digitalisation is the conversion of information: text, sound or picture, into a single binary code. Digital signals exist as either 0s or 1s. These are called bits and the sequences of 0s and 1s are called bytes. Analogue signals are continuously variable, both in the number of possible values and points in the signal in a given period of time. TV digitalisation explained.