We reiterate our UNDERWEIGHT call on the media sector. Despite the 14.7% YoY growth in overall total gross adex for the first three months of 2014 which was led by higher contributions from the Pay-TV, FTA-TV and newspaper segments, it only advanced 7.8% (vs. 8.9% YoY in YTD February) to RM1.97b after stripping-off the Pay-TV contribution. Our cautious view on the sector remains unchanged, where 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 to our media companies’ earnings forecasts for now, pending the upcoming 1QCY14 result season. 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). March’s gross adex grew 21.7% MoM (vs. -18.5% in February) and 14.7% YoY on a YTD basis. The strong growth in March’s gross adex on a MoM basis was not a surprise due to longer working days as opposed to a holiday-shortened month in February. The better gross adex in March was mainly led by higher contribution from all media types, except Instore (-10.2% MoM) and Cinema (-28.7% MoM) segments. On YTD March basis, the total gross adex grew by 14.7% YoY to RM3.1b, thanks to the continuous strong Pay-TV (+29.4%), FTA (+8.3%) and Newspaper (+8.6%) segments. Stripping off the Pay-TV segment contribution, the YTD March gross adex advanced 7.8% YoY.

Newspaper YTD March’s gross adex growth lower at 8.6% YoY (vs. 9.4% YoY in YTD February) to RM1.07b. The decent YTD growth in the Newspaper segment was mainly driven by the English segment (+27.9% YoY) underpinned by the strong performance of both STAR (+21.1% YoY to RM261m) and New Straits Times (NST, +24.6% YoY to RM347m). 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 2.5% YoY YTD while the Chinese segment suffered a 4.7% drop due to the Chinese New Year holidays coupled with the dented sentiment due to the MH370 flight tragedy. On the newspaper incumbents, STAR and MEDIA; their YTD March 2014 newspaper gross adex advanced by 21.1% YoY and 24.6% YoY, respectively, while MEDIAC’s adex declined 4.6% YoY to RM216m.

The YTD Pay TV gross adex continued to gain by 29.4% YoY to RM1.8b at the expense of FTA TV, which merely improved by only 8.3% YoY. On a MoM basis, both the Pay and FTA TV adex climbed by 13.6% and 12.8%, respectively. MEDIA’s gross TV adex, meanwhile, surged by 8.2% YoY (or 10.4% MoM) to RM644m in YTD March, thanks to the strong performance across all its in-house channels namely 8TV (+11.3% YoY to RM135m), TV3 (+3.5% YoY to RM280m), NTV7 (+5.0% YoY to RM109m) and TV9 (+20.9% YoY to RM120m). On the Pay TV front, Astro PRIMA, Astro RIA and Astro Wah Lai Toi channels continued to rank as the top three highest adex generators as they contributed an aggregate RM370m in gross adex or 33% of the total YTD Pay TV gross adex of RM1.1b. On market share, the Pay TV segment improved by 410 bps YoY to 35.9% at the expense of the FTA TV segment.

Cinema segment gained traction in YTD March and climbed 64.5% YoY to RM10.3m. The strong growth suggested that advertisers had started to focus on specific audience target rather than the mass market. Similarly, magazine's segment gross adex also climb during the same period, though at a marginal 3.2% growth YoY.

Source: Kenanga