In This Article:
Pico Far East Holdings Limited (HKG:752), a HK$3.8b small-cap, operates in the media industry which has experienced the impact of the growing presence of online streaming. Media analysts are forecasting for the entire industry, a positive double-digit growth of 22% in the upcoming year , and a whopping triple-digit earnings growth over the next couple of years. This rate is larger than the growth rate of the Hong Kong stock market as a whole. Should your portfolio be overweight in the media sector at the moment? Today, I will analyse the industry outlook, as well as evaluate whether Pico Far East Holdings is lagging or leading in the industry.
View our latest analysis for Pico Far East Holdings
What’s the catalyst for Pico Far East Holdings’s sector growth?
Simply capturing natural customer growth and their uptake of content with existing approaches is no longer sufficient. In the previous year, the industry saw growth of 2.0%, though still underperforming the wider Hong Kong stock market. Pico Far East Holdings lags the pack with its negative growth rate of -3.4% over the past year, which indicates the company has been growing at a slower pace than its media peers. Although Pico Far East Holdings is poised to deliver a 19% growth next year, moving it from negative to positive territory, it still lags its industry average rate of growth of 22%.
Is Pico Far East Holdings and the sector relatively cheap?
Media companies are typically trading at a PE of 15.67x, relatively similar to the rest of the Hong Kong stock market PE of 11.51x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 8.0% on equities compared to the market’s 9.5%, potentially illustrative of a turnaround. On the stock-level, Pico Far East Holdings is trading at a PE ratio of 13.41x, which is relatively in-line with the average media stock. In terms of returns, Pico Far East Holdings generated 15% in the past year, which is 6.6% over the media sector.
Next Steps:
If Pico Far East Holdings has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is an media industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the media sector. However, before you make a decision on the stock, I suggest you look at Pico Far East Holdings’s fundamentals in order to build a holistic investment thesis.