KUALA LUMPUR (May 5): Media Prima Bhd has been overlooked by the market as the potential beneficiary of Disney+ Hotstar’s entry into Malaysia, according to a local research house.In a note today, CGS-CIMB Research said much of the local content that will be a…

KUALA LUMPUR (May 5): Media Prima Bhd has been overlooked by the market as the potential beneficiary of Disney+ Hotstars entry into Malaysia, according to a local research house.
In a note today, CGS-CIMB Research said much of the local content that will be added to the subscription video-on-demand (SVOD) services library is produced by Media Primas Primeworks Studios.
We suspect these programmes and movies have been fully amortised since they are mostly dated content. Thus, most of the amount that Disney pays to Media Prima for the content should theoretically trickle down to the latters bottom line, said its analysts Kamarul Anwar and Mohd Shanaz Noor Azam.
As for Astro Holdings Bhd, they note that it is premature to quantify how its appointment as Disney+ Hotstars distributor will affect the companys bottom line as there are still a few unknowns.
Theoretically, the surcharge for Disney+ Hotstars addition should elevate Astros average revenue per user (ARPU); assuming that 20% of its existing subscribers have the Movie Pack, Astros ARPU would rise by RM1/month from FY1/21s RM96.90/month.
Our FY1/22F ARPU forecast stands at RM99.70/month, as we expect some recovery after the initial movement control order (MCO) rendered many subscribers unable to pay bills on time.
What is currently unknown is whether Astro will reduce its subscription bill after Disney shuts down 18 of its Asian divisions channels come October 2021. Eleven of those stations make up 8% of 138 of Astros existing slate of TV channels. The average revenue/channel stands at circa RM1.30/month, said the analysts.
At the time of writing today, Astro had fallen two sen or 1.89% to RM1.04, with a market value of RM5.42 billion. Media Prima, meanwhile, was unchanged at 54 sen, giving it a market capitalisation of RM593.42 million.
On the bright side, CGS-CIMBs analysts said Astro should be able to enjoy cost savings on its end when the 11 Disney-owned channels go off-air.
Our sensitivity analysis found that for every 5% reduction in Astros FY1/23F content cost, the groups net profit for the financial year would appreciate by circa 7.6% from our existing forecast of RM725.4 million.
However, we believe that much of the savings from lower international content cost will be reinvested in Astros original production, especially since the group needs to bolster its content count to be included in its upcoming standalone SVOD service, said the analysts.
According to them, Disney+ Hotstars impending arrival to Malaysia could be a boon for Astro and Media Prima.
Coincidentally, these two stocks are our top picks for the sector as they are revamping their business models and cost structures after the decade of disruption in the 2010s.
Downside risks are adex [advertising expenditure] falling further, home-shopping businesses turning red again, and efforts to combat piracy petering out, added the analysts.
They had an “add” rating for both counters, with a target price (TP) of RM1.51 for Astro and 88 sen for Media Prima.
MIDF, HLIB raise Astros TP, earnings forecasts on Disney+ deal
MIDF Research and Hong Leong Investment Bank (HLIB) Research have raised their TPs for Astro following Disney+ Hotstar streaming service platform deal with The Walt Disney Company.
HLIB has maintained its “buy” call on Astro with a slightly higher TP of RM1.11 from RM1.10 previously.
We are encouraged by Astros efforts to partner with more streaming services which will provide more value to its service offerings as well as help to retain its customer base. Besides that, Astro also pays out generous dividends, yielding 7.1%.
We have pencilled in a slightly higher ARPU as well as content cost. As a result, our earnings forecast for FY22 and FY23 increase marginally by 0.5% to RM512.8 million and 1.0% to RM569.8 million respectively, said the research house.
Meanwhile, MIDF, which kept its “buy” call on Astro, has revised its TP upward to RM1.17 (from 98 sen).
We are revising our earnings forecasts for financial year ending Jan 31, 2022 (FY22), FY23 and FY24 upwards by 7.9%, 17.5% and 18.5% to RM639.7 million, RM722.3 million and RM747.4 million, said the research house.
It said the downside risks to its call includes customers opting for stand-alone Disney+ Hotstar as a cheaper option, and increase in access to pirated streaming sites.
The Disney+ Hotstar streaming platform will be launched in Malaysia on June 1.
Read also:Astro and Walt Disney team up to launch Disney+ Hotstar streaming service in Malaysia on June 1