- Given the recent decline in oil prices, weak external sentiment as well as ongoing domestic uncertainties, USDMYR has declined by 10% over the past three months to last traded 3.58.

- Following our checks, we have summarised below the feedback from the media companies under our coverage regarding their exposures to the strengthening dollar against the ringgit:-

• Astro Malaysia Holdings. Astro has US dollar exposure on two fronts, but is largely insulated from the weakening MYR.
• Firstly, based on the group’s most recent quarterly result announcement, 29% of Astro’s borrowings (including its finance leases for its transponders) are denominated in USD. However, these are hedged for the entire loan period.
• Secondly, the group incurs US dollar expenses for its content cost. Its sports and international contents – which account for 70% of total content cost – are denominated in USD to the tune of USD300-USD350 p.a. However, Astro has a currency hedge on a 12-month forward basis until October this year.
• Media Chinese International (MCIL). MCIL does its reporting in USD given its dual-listing status in Hong Kong. However, the majority of its operations are based in Malaysia. The group’s main exposure to US dollar is from its newsprint purchases. MCIL currently has 6-7 months of inventory, and is currently holding back on further purchases while monitoring the currency very closely.
• Star Publications (Star). Similarly, newsprint purchases are the group’s only exposure to the US dollar. The group currently has a newsprint inventory of 9 months and estimates the weakened ringgit thus far to have an impact of RM3mil-RM4mil to bottomline.
• Media Prima (MPR). MPR currently has 3-4 months of newsprint inventory. MPR also spends circa RM250mil on content cost per year, of which 40% are foreign contents denominated in USD. MPR’s USD exposure is not hedged. However, management highlights the recent increase in cover price of 20-50 sen for its newspapers will contribute incremental revenue of RM20-30mil to the group, which we think will largely offset the impact of the weakening MYR.

- Despite the recent sell down of the media stocks, the Star, MPR and MCIL are still trading at their 5-year average PE level at 10x-12x, due to earnings downgrades following a string of earnings disappointments in 2014. Astro, on the other hand, is trading at FY16F PE of 25x.

- We are keeping our NEUTRAL stance on the sector as we believe earnings will continue to be weak due to ongoing uncertainties amid weak consumer sentiments. The weakening ringgit against the USD is an added uncertainty and we think earnings may further surprise on the downside.

Source: AmeSecurities