We reiterate our UNDERWEIGHT call on the media sector. On the horizon, the 2014 FIFA World Cup, scheduled to kick off end-2Q14 is expected to boost the TV segment adex by c.10% MoM, based on historical trends. YTD February gross adex advanced by double-digit growth YoY, underpinned by the strong TV and Newspaper segments. However, these factors did not prompt us to change our bearish sector view where we believe the on-going subsidy rationalization will continue to weigh heavily on consumer sentiment. The upcoming FIFA World Cup and Visit Malaysia Year may, to a certain extent, provide some cheers and help cushion the negative impact. Based on our observations, the sector incumbents seem to have begun offering more discounted rates to advertisers to boost gross adex and thus, this may not translate into better net adex revenue. 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: RM3.14) 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).

4QCY13 results snapshot. The sector generally posted a reasonable performance in CY13 with results that came in within our forecasts as well as the street’s estimate. STAR was the only company which reported CY13 results that beat our expectations due to the better-thanexpected event management division's contribution, which is always a wildcard to the group's earnings. Having said that, the cost incurred on its group’s voluntary separation schemes to streamline its work force in FY14 will likely cap its near-term profitability. Meanwhile, for MCIL, its 9M14 earnings were within expectation but management warned that business environment will remain challenging in the coming quarters due to seasonal factor and the spill-over effect from the on-going subsidy rationalisation. Similarly, MEDIA’s FY14 results were within our expectations but its dividend payout ratio policy was revised from a wide 25%- 75% range to a narrower 60%-80% range despite the bleak adex outlook. Astro, meanwhile, posted a decent FY14 results. Nevertheless, the rising cost environment could potentially weigh on consumer sentiment and thus lead to a lower Pay-TV net adds and ARPU going forward.

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 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. For the Newspaper segment, meanwhile, the YTD February’s gross adex went 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 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, thus we believe that it may not lead to a surge in net adex revenue in the coming quarters.

FIFA World Cup expected to uplift TV adex. The 2014 FIFA World Cup, which will take place in Brazil from 12 June to 13 July, is expected to boost the TV segment adex by c.10% MoM during the game, based on the historical performance. For the Print segment, we understand that the newsprint anti-dumping policy (from Canada, Indonesia, South Korea, the Philippines and the U.S.) is currently under review. Should there be any reduction or termination of the abovementioned anti-dumping policy, some downward pressures to the domestic newsprint price benefiting the incumbents can be expected.

Muted view on the sector remains unchanged. 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 ongoing 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