We reiterate our NEUTRAL view on the Media sector.  The YTD May gross adex grew by 17.9% YoY (or +2.6% YoY should we exclude the Pay TV segment), thanks to higher contributions from the TV segment  that was mainly led by the election boom as well as a higher Pay TV penetration rate. Going forward, TV gross adex is expected to remain buoyed underpinned by a higher contribution from the Pay TV segment as a result of higher viewership and household penetration rate. On the other hand, for the print  media, its adex growth performance is expected to be sluggish as a result of the on-going print-to-online migration, although the net earnings impact could be cushioned by the low newsprint cost. We are maintaining our full-year CY13 adex annual growth rate of 8% although the estimate is conservative given the  strong double digit YoY growth YTD. We may revisit our number should the adex momentum remain strong in the next 1-2 month. ASTRO (TP: RM3.29) is our only OUTPERFORM stock for the sector and we are maintaining our MARKET PERFORM ratings for Media Chinese (“MEDIAC”, TP: RM1.23), STAR (TP: RM2.87) and Media Prima (“MEDIA”, TP: RM2.72).  

1QCY13 results snapshot.  Generally, three out of the four media companies under our overage namely ASTRO, MEDIA and MEDIAC had posted reasonable 1QCY13 results, which came in within expectations. STAR was the only company reporting a weaker set of 1QFY13 results as a result of the sluggish adex sentiment in the newspaper medium, particularly in the English language segment. The performance of the three companies mentioned above has been discussed in our earlier results notes and there is no change in our targeted 8.0% annual gross adex growth rate for CY13. 

The YTD May gross adex has improved by +17.9% YoY to RM4.8b  according to Nielsen. The decent growth was mainly driven by Pay TV (+67.6%) and FTA TV (+10.4%) but was slightly offset by the marginally lower contribution from the Newspaper (-0.3%) segment. On a MoM basis, the total adex advanced by 15.3% as a result of the rising General Election fever and various sport events in the month.  

TV players’ strategies are to defend their turfs. MEDIA will continue to invest in compelling quality content across the nation to defend its leadership position, its key strategy will also be to focus on growing its consumer revenue (c.15% YTD) via monetising its content library. Meanwhile, ASTRO’s strategy is to focus on growing its Pay-TV subscription revenue by up-selling its packages as well as its value-added products and services. MAXIS-ASTRO’s IPTV services have received encouraging responses with approximately 10k bookings after the official launch of the products since end-April. No further update has been provided by both companies since then, but we understand that ASTRO  is eyeing to register c.60k-70k and c.170k-180k IPTV subscribers in CY13 and CY14 respectively. 

On-going print-to-online migration continues to dent the newspaper segment momentum. For the YTD May, the newspaper segment gross adex was relatively flat at -0.1% YoY to RM1.5b, where the BM and English language segments were lower by -2.3% YoY and -5.7% YoY respectively. We believe this was mainly due to the on-going print-toonline migration as well as the fact that advertisers were focusing on more targeted groups and the interactive media. The Chinese segment, meanwhile, was the only segment that improved by +10.9% YoY thanks to its resilient circulation number. Strategy-wise, we understand that STAR is still in an expansion mode  to further enlarge its media portfolio. MEDIAC, meanwhile, will continue to focus on defending its adex market share as well as improve its efficiency.  

Newsprint inventory remained largely unchanged but with a lower average price. STAR continued to have the highest newsprint inventory with c.16 months of supply and with a lower average price of USD650/MT (vs. >12 months @ USD660/MT three months ago). Meanwhile, MEDIAC’s newsprint inventory remained unchanged at 6-8 months, but its average price is now lower at c.USD650/MT (vs. USD670/MT in March). On the other hand, MEDIA’s newsprint inventory is now lower at 3 months (vs. 4-5 months in 1Q) with an unchanged average cost of c.USD640/MT.

Source: Kenanga