We reiterate our UNDERWEIGHT call on the media sector. Despite the 14.3% YoY growth in overall total gross adex for the first two months of 2014 which was led by higher contributions from the Pay-TV, FTA-TV and newspaper segments, it only inched up 8.9% to RM1.2b after stripping-off the Pay-TV contribution. Moving forward, we believe the on-going subsidy rationalization plan will continue to weigh on the consumer sentiment although the upcoming FIFA World Cup and Visit Malaysia Year could somehow provide some cheers and help cushion the negative impact. We leave our CY14 total gross adex growth forecast unchanged at 6.8% YoY (or 2.9% after stripping off the Pay-TV segment contribution). There is no change in our media companies’ earnings forecasts. We reiterated our MARKET PERFORM call on ASTRO (TP: RM3.10) and Media Chinese Intl’ (MEDIAC, TP: RM0.94) and maintained our UNDERPERFORM calls on Star Publications (STAR, TP: RM2.05) and MEDIA PRIMA (MEDIA, TP: RM2.66).

February’s gross adex decreased 18.5% MoM but climbed 10.6% YoY to RM881m. The sharp drop in February’s gross adex on a MoM basis was not a surprise due to: (i) shorter working days as a result of Chinese New Year holidays and (ii) advertisers’ tendencies to conserve A&P budget in the first two months of a new year to renegotiate new advert rates. On a YoY basis, the double-digit growth in February’s gross adex was mainly fueled by higher adex performance in all media types (except the Radio segment) coupled with a lower base effect in February 2013. On YTD February basis, the total gross adex grew by 14.3% YoY to RM2.0b, thanks to the continuous strong Pay-TV (+30.1%), FTA (+10.3%) and Newspaper (+9.4%) segments. Stripping off the Pay-TV segment contribution, the YTD February gross adex grew by 8.9% YoY.

Newspaper YTD February’s gross adex up by 9.4% YoY to RM663m. The strong growth in the Newspaper segment was mainly driven by the English segment (+30.0% YoY) underpinned by the strong performance of both STAR (+23.7% YoY) and NEW STRAITS TIMES (NST, +89.6% YoY). Despite the strong gross adex, we observed that the discount rates for both STAR and NST have widened significantly, based on our back-of-the-envelope calculations (please refer to figure 8 in the overleaf page), thus we believe that it may not lead to a surge in net adex revenue in the coming quarters. The BM segment, meanwhile, grew by 6.5% YoY while the Chinese segment suffered a 4.7% drop due to Chinese New Year holidays. On the newspaper incumbents, STAR and MEDIA; their YTD February 2014 newspaper gross adex advanced by 23.7% YoY and 32.1% YoY, respectively, while MEDIAC’s adex declined 4.3% YoY.

The YTD February Pay TV and FTA TV gross adex continued to climb by 30.1% YoY and 10.3% YoY to RM717m and RM472m, respectively. On a MoM basis, both the Pay and FTA TV adex fell by 24.7% and 5.6%, respectively, in line with the broad adex trend. MEDIA’s YTD February gross TV adex, meanwhile, surged by 11.4% YoY to RM418m thanks to the strong performance of all its TV stations. 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 RM230m or 32% of the total YTD Pay-TV gross adex. Meanwhile, if 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 48% of the total Pay-TV gross adex with an aggregate adex spend of RM342m.

Muted view on the sector remains unchanged. Moving forward, while we continue to believe that 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) potential slower property projects launches, and hence lower ads spend as a result of various stringent lending policies. Hence, overall tepid consumer sentiment will cause the business sector to tighten the adex purse. 

Source: Kenanga