Highlights

Circulation was flat… We attended Audit Bureau of Circulation’s (ABC) forum last Friday whereby the latest newspaper circulation figures (Jul-12 to Dec-12) were also released. Overall, circulation figures remained largely unchanged compared to the previous corresponding period. However, when compared to Jan-12 to Dec-12 period, circulation contracted by 2.8% (see Figure #1).

BM paper mixed … Although BM circulation grew by 1.3% compared to the previous corresponding period, when compared to 1H figures, overall circulation contracted by 4.1%. Weakness was seen in Harian Metro and Berita Harian’s circulation. Incidentally, both these papers are under Media Prima’s staple.

Oriental casualty… Chinese paper circulation was largely unchanged compared to the previous corresponding period with the exception of Oriental Daily which saw its circulation fall below the 100k threshold. This would imply that MCIL is winning the market share in the Chinese segment.

English discount… English paper’s circulation decline was largely from New Straits Times’ (NST) figures. However, it is important to note that discounted papers made up 42% and 14% of NST and Star’s circulation respectively.

Readership number… The forum’s key debate was on the relevance between circulation and readership numbers. We believe that both circulation and readership figures are used by media planners. The former provides geo-tactical purposes while the latter provides demographic targeting.

Star online… Star has the first mover advantage for epaper with 42.2k subscribers as of end Dec-12. We believe that e-paper and online advertising will be the next frontier for the media industry.

Free threat… We foresee free newspaper providers to steal Adex market share from the incumbents. The English has theSun (302k circulation) while the Chinese segment has Red Tomato (213k circulation). Free Malay newspaper could be next.

Better credibility… We welcome ABC’s enhanced reporting framework. However, over the longer term, with the expected decline in circulation figures, we wonder whether media owner’s will continue to corporate with ABC as it may affect their advertising rates.

Catalysts

Upgrades: Strong recovery in the global economy and strong domestic consumption which reinforces business confidence to spend on Adex.

Downgrades: Weak domestic consumption and continued deterioration in the Euro debt crisis.

Risks

Weaker than expected domestic consumer spending; Threat of new players; and Rising raw material prices and content costs.

Rating/ Valuation

We foresee tepid Adex growth multiplier of 1.2-1.5x, hence, we maintain our NEUTRAL stance on the sector. However, over the longer term period, we prefer Media Prima and Astro.

(1) Astro (HOLD; TP: RM2.98); (2) Media Prima (HOLD; TP: RM2.44); (3) Star (HOLD; TP: RM2.77); (4) Media Chinese (HOLD; TP: RM1.31)

Source: Hong Leong Investment Bank Research - 8 Jul 2013