Our UNDERWEIGHT call on the media sector remains unchanged. Although the total gross adex advanced by +17.0% YoY in the first month of 2014 led by higher contributions from the Pay-TV, FTA-TV and newspaper segments, it only inched up +6.2% to RM667m after stripping-off the Pay-TV contribution. Going 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 2014 and do not discount a potential earnings downgrade should the negative impact hits worse than expected. 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 Publications (STAR, TP: RM2.00); MEDIA CHINESE (MEDIAC, TP: RM0.94) and MEDIA PRIMA (MEDIA, TP: RM2.64).

January’s gross adex improved 17.0% YoY to RM1.1b, led by the continued strong Pay-TV (+40.3%), FTA (+10.2%), and Newspaper (+7.8%) segments as a result of the lower base effect in January 2013. The overall gross adex YoY growth, in fact, could have recorded an even stronger growth in January 2014 given that Nielsen had temporary halted reporting the Outdoor segment Ad Spend as outdoor operators were unable to provide their Ad Spend logs on time.

Stripping off the Pay-TV segment contribution, the January gross adex merely grew by +6.2% YoY. On a MoM basis, the total gross adex dipped by -20.7% in January (vs. +3.3% in December). The lower MoM growth was not a surprise given that advertisers tend to spend aggressively to meet their annual adex budget during the year-end and conserve their A&P budget in the first two months of a new year to renegotiate new advert rates. Meanwhile, we also believe that the announcement of a series of subsidy rationalization plans (which several took effect from January 2014 onwards), and the expected spill-over effect had also dampened consumer sentiment, thus leading advertisers to adopt a cautious stand.

Newspaper January’s gross adex up by +7.8% YoY to RM364m. The decent growth in the Newspaper segment was mainly driven by the English segment (+24.3% YoY) due mainly to the lower base effect. The BM segment, meanwhile, grew by +2.0% YoY while the Chinese segment suffered a -1.4% decline despite the Chinese New Year festival falling in end-January. On the newspaper incumbents, STAR and MEDIA; their January 2014 newspaper gross adex advanced by +18.2% YoY, and 26.1% YoY, respectively, while MEDIAC’s adex declined by -3% YoY.

The Pay TV and FTA TV gross adex continued to climb by +40.3% YoY and +10.2% YoY to RM409m and RM243m, respectively. On a MoM basis, both the Pay and FTA TV adex fell by -19.9% and -27.1%, respectively, in line with the broad adex trend. MEDIA’s gross TV adex meanwhile surged by +10.1% YoY (or -26.3% MoM) to RM214m in January thanks to the strong performance of 8TV (+32.9% to RM51.1m); NTV7 (+16.4% to RM39.7m); and TV9 (+8.8% to RM34.9m) although partially offset by the lower contribution from TV3 (-1.5% to RM88.4m). On the Pay TV front, 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 RM131m or 32.1% of the total YTD Pay-TV gross adex. Meanwhile, should we include Astro Hua Hee Dai and Astro AEC into the portfolio; the top five highest Pay-TV adex generators will see their total domination increasing to 40% of the total Pay-TV gross adex with an aggregate adex spent of RM196m.

2014 adex outlook remain unchanged. We reiterate our muted view on the adex growth in 1QCY14 in view of the absence of key events and seasonality factor where advertisers tend to conserve their A&P budget during the first two months of a new year to renegotiate new advertisement rates. Moving forward, although we believe the FIFA World Cup and Visit Malaysia 2014 may provide some positive lift to consumer sentiment, these feel-good factors 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 atighten their adex purse.

Source: Kenanga