Mon 28 Jan 2019
What is happening in the media sector? According to a recent analyst report on the sector, it appears there is not much positives but more gloom.
But have prices discounted the obvious? Judging from our favourite stock rally in the sector, Astro Malaysia, which elite traders would have gone in at around 1.22 near the end of last year when the mPower algorithm flashed a buy (now up 34% in two months), will other media stocks rally in sympathy soon?
According to the recent analyst report, it says that while the Consumer Sentiment Index has improved since the first quarter of 2017 (1Q17), this however had failed to spur total advertising expenditure (adex) (excluding digital and pay TV), which continued to dwindle since 2015 (-17% year-on-year in the first half of 2018 [1H18]).
It adds that the subdued adex spending linked mostly to the moderation in print media (-17.6% in 1H18), which was hurt by ailing circulation trends.
Moving into 2019, the report expects adex to remain challenging due to moderating private consumption and the absence of adex-friendly events.
It expects more pressure to be seen in the print segment due to declining circulation (-21.5% in 1H18) that has shifted to digital-based segment.
Apparently, cost cutting measures will not be sufficient to mitigate the falling revenues and to add to the woes, the report estimates that the ringgit will weaken against the US dollar in 2019, and newsprint players have 30% of total print cost in ringgit.
However, could there be two catalysts unseen which will add excitement to the sector?
The first is whether the possibility of restructuring of the ownership structure of media companies by limiting the shareholding of political parties and other entities to 10% may take place.
The second is whether with media companies facing cash constraints will there be a possibility of significant asset unlocking activity.
The analyst report does not think so but with the rally in Astro continuing, will the other media stocks rise on the back of corporate news flow above or even rally in sympathy?
Where will Astro rally to? Is the stock in a bull rally or a corrective rally?
There are two key target prices which will define the stock rally soon and elite traders should be prepared for these two levels.
How about the other media stocks? Which critical levels will define their direction?
Looking at their fair value by analysts, these media stocks are undervalued but at which level will the spark come?
There are a few non-consensus media stocks which are showing interesting developments as well.
Look at the table below and monitor these stocks at their critical levels for the answers.
Media sector and stocks highlights (consensus stocks highlighted only)