We are maintaining our NEUTRAL view on the media sector. The YTD June gross adex  surged  by  +18.3%  YoY  thanks  to  higher  contributions  from  the  Pay-TV (+71.8%) and FTA TV (+7.1%) segments, although they were partially offset by a relatively sluggish performance of the Newspaper (+0.2%) segment. Nevertheless, should we strip off the Pay-TV contribution, the YTD June total gross adex was only up by 1.6% to RM3.95b. On a MoM basis, June’s gross adex continued to advance but at a lower pace at +3.5% (vs +15.3% MoM in May) as a result of the higher base effect in May (that was mainly driven by General Election fever and various sport events during the month). There is no change in our targeted 8.0% annual gross adex growth rate for now despite the strong YTD adex performance. We continued to believe that the consumers’ spending sentiment could potentially turn lower in the next few months as a result of the upcoming cost-push effect led by the various subsidies rationalisation plans.

There are no changes to our media companies’ CY13-CY14 earnings forecasts. We are reiterating our OUTPERFORM call on Astro Malaysia Holdings (“ASTRO”, TP: RM3.29) while maintaining our MARKET PERFORM ratings on Media Chinese International (“MEDIAC”, TP: RM1.23), Star Publications (“STAR”, TP: RM2.87) and Media Prima (“MEDIA”, TP: RM2.72).   

YTD June gross adex advanced to RM6.0b (+18.3%) according to Nielsen.  The strong YTD adex growth continued to be led by higher contribution from the TV segment (Pay-TV rose (+71.8% YoY); FTA (+7.1% YoY)). The newspaper gross adex, however, was relatively sluggish at -0.1% to RM2.1b. The stronger YTD Pay-TV segment was mainly due to an additional 15 channels (to 27 channels) being gradually included into Nielsen’s Pay-TV segment portfolio since July last year. Stripping off the additional channels' effect, the Pay-TV segment only grew +13.5% YoY to  RM1.38b as of YTD June. Meanwhile,  should we exclude the Pay-TV segment, the YTD June total gross adex was only up by 1.6% to RM3.95b. On a MoM basis, the total gross adex grew by +3.5% (vs. +15.3% in May), thanks to continued growth in the Pay-TV segment that was mainly led by Astro RIA; Astro Warna; and Astro Supersports channels. On market share, Pay-TV continued to grow its share to 34.5% (vs. 23.7% a year ago) at the expense of the newspaper (34.3% vs. 40.6%), FTA TV (24.2% vs. 26.8% previously) and radio segments (3.6% vs. 4.0%). 

For the YTD, Pay-TV and FTA TV continue to growth to RM2.1b (+71.7% YoY) and RM1.5b (+7.1% YoY), respectively. On a MoM basis, Pay-TV adex advance by 7.3% thanks to the higher adex revenue contribution from Astro Supersport; Astro Prima and Astro Ria channels. Meanwhile, FTA TV adex was up by 5.5% mainly led by higher TV3 gross adex contribution. Astro PRIMA, Astro RIA and Astro Wah Lai Toi channels continued to rank as the top three highest Pay-TV adex generators with an aggregate contribution of RM665m in gross adex or 32% of the total YTD Pay-TV gross adex. 

Newspaper YTD June gross adex remains sluggish at RM1.8b (+0.2% YoY), mainly driven by higher adex growth in the Chinese (+9.0% YoY) segment but largely offset by the weaker performance in both the English (-3.1% YoY) as well as BM (-2.7% YoY) segments. We opine that the continued weaker adex momentum, to a certain extent, in the English newspaper segment is due to the ongoing print-to-digital migration trend. On a MoM comparison, Chinese-language newspaper was  the only segment that recorded a lower growth of -9.9% as a result of the higher base effect on May driven mainly by the election fever. On the newspaper incumbents, MEDIA and MEDIAC’s 2QCY13 newspaper gross adex improved by +2.0% and +8.6% YoY, respectively, while STAR continued to suffer a negative growth rate of -9.0% YoY (1QFY13: -4.3% YoY), according to Nielsen. 

2013 adex outlook remains unchanged.  We reiterate our neutral view on the sector despite the continuing strong YTD gross adex growth. While we are keeping our targeted annual gross adex growth rate of 8.0% for now (in view of the potential cost-push effect post the GE, likely to be led by the various subsidies rationalisation plans), we may adjust our estimate should the strong adex growth momentum continue in the next 1-2 months.

Source: Kenanga