We reiterate our UNDERWEIGHT call on the media sector. The total gross adex advanced by 19.0% YoY in CY13 led by higher contributions from the Pay-TV, FTA-TV and newspaper segments. However, excluding the Pay-TV contribution, the total gross adex YoY growth inched up by merely 2.8% (in-line with our full-year forecast of 2.6%) to RM8.7b. Moving forward, while we believe that the two major events in 2014 namely FIFA World Cup and Visit Malaysia Year could help boost consumer sentiment, these feel-good factors could potentially be dampened by the on-going subsidy rationalization plan. As a result, we are keeping our total gross adex growth forecast unchanged at +6.8% YoY (or +2.9% after stripping off the Pay-TV segment contribution) in CY14 and do not discount a potential earnings downgrade should the negative impact comes in worse than our expectation. There is no change to our media companies’ earnings forecasts for now, pending the upcoming 4QCY13 report cards release. We reiterate our MARKET PERFORM call on ASTRO (TP: RM3.10) and maintain our UNDERPERFORM calls on STAR (TP: RM2.00); MEDIA CHINESE (MEDIAC, TP: RM0.94) and MEDIA PRIMA (MEDIA, TP: RM2.64).

CY13 gross adex improved to RM13.5b (+19.0% YoY), led by the continued strong TV segment adex contribution (31.5% YoY to RM8.1b). On closer analysis, the TV segment was mainly boosted by the strong Pay-TV adex, which soared 64.9% YoY (to RM4.9b) as compared to the minuscule 0.2% YoY growth in the FTA-TV segment. The strong Pay-TV adex growth in CY13 is not a surprise given there are 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 by 19.7% YoY to RM3.2b in CY13. Meanwhile, should we exclude the Pay-TV segment, the total gross adex growth in CY13 was merely +2.8% YoY (in-line with our fullyear estimate of 2.6%) to RM8.7b. On a MoM basis, the total gross adex grew by 3.3% in December (vs. +2.5% in November), as a result of moderate growth in the key segments. On a quarterly basis, the 4Q13 total gross adex, however, advanced at a slower pace of11.4% in contrast to a 14.0% QoQ growth in 4Q12 due mainly to the lacklustre consumer sentiment which was affected by a series of subsidy rationalizations.

Feel good factors may be offset by the on-going subsidy rationalisation plan. The FIFA World Cup and Visit Malaysia 2014 may provide some positive lift to consumer sentiment. These feel-good factors, however, could potentially be offset by: (i) the escalating cost of living (spurred mainly by the on-going subsidies rationalisation plan) and (ii) further stringent measures by Bank Negara Malaysia to cool the property sector (leading a potential slowdown in property projects launches and hence ads spend) and thus dampening overall consumer sentiment and causing businesses to tighten their adex purse.

Top five channels accounted nearly half of the Pay-TV ad spends. Astro Ria, Astro Prima, and Astro Wah Lai Toi continued to rank as the top three highest Pay-TV adex generators with an aggregate contribution of RM1.6b or 32.4% of the total YTD Pay-TV gross adex. Meanwhile, should we include AXN and Astro AEC into the portfolio; the top five highest Pay-TV adex generators will see their total domination increasing to 44.9% of the total Pay-TV gross adex with an aggregate adex spent of RM2.2b (or +46.4% YoY). On the FTA TV front, TV3 and 8TV continued to rank as the top two highest adex generators while TV9 has continued to be ahead of NTV7 as the third favourite FTA-TV channels due to the formal favorable discount rate. On a MoM basis, both the FTA and Pay-TV segments improved by 8.7% and 1.0%, respectively, as compared to a 2.9% and 2.0% growth in November. MEDIA’s 4Q13 FTA-TV gross adex, meanwhile, was lowered by 2.0% QoQ (or +20.2% MoM) to RM822m.

The newspaper segment inched by 0.3% in December, bringing the YTD growth to RM4.6m (+6.2% YoY). The growth was mainly led by a higher performance in the English segment (+14.2% YoY in CY13) as a result of the rate cards' revision (based on a new classification format) in the STAR’s newspaper. On a QoQ basis, STAR’s 4QCY13 gross adex improved by +6.3% QoQ to RM306m while MEDIAC’s adex increased to RM232m (+2.5% QoQ). MEDIA’s gross adex, meanwhile, recorded a relatively flat growth of -0.4% QoQ to RM422m in 4QCY13.

Source: Kenanga