Our UNDERWEIGHT call on the media 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 to cushion the negative impact. MEDIA has released its 1Q14 results in the early of May. While the group’s result came in within expectations, its net profit (as a percentage of the full-year forecast) came in at the lower-end of the historical trend at merely c.13% and c.12% of our full-year forecast as well as the street’s. Note that, historically MEDIA’s 1Q normally made-up c.10-17% of the fullyear net profit in the past three financial years. As a result, taking cue from MEDIA’s 1QCY14 results performance, we believe STAR as well as MEDIAC may likely to post lackluster earnings report cards. 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 for now, pending on the upcoming 1QCY14 result release. We reiterated our MARKET PERFORM calls on ASTRO (TP: RM3.14); MEDIA PRIMA (TP: RM2.68) and Media Chinese Intl’ (MEDIAC, TP: RM0.94) and keeping our UNDERPERFORM rating on Star Publications (STAR, TP: RM2.05).

April’s gross adex added 2.3% MoM (vs. 21.7% MoM in March) and 14.8% YoY on YTD basis. The slow growth in April’s gross adex on a MoM basis was not a surprise after the strong growth in the prior month. We believe consumers as well as advertisers’ have started to feel the heat, followed a series of subsidy rationalizations, sending the country’s inflation rate to 29-month high of 3.5% in March 2014 (as a result of higher food, housing and gas prices). Having said that, we believe the Adex growth, especially the TV segment, may experience some uplifts in June and July, thanks to FIFA World Cup event. The uninspiring gross adex growth in April was mainly led by higher Pay TV segment (+18.2% MoM) contribution but partially offset by lower contributions from Newspaper (-8.7% MoM) and FTA TV (-2.1% MoM) segments. On YTD-April basis, the total gross adex grew by 14.8% YoY to RM4.2b, thanks to the continuous strong Pay-TV (+30.0%), FTA (+8.3%) and Newspaper (+8.1%) segments. Stripping off the Pay-TV segment contribution, the YTD April gross adex climbed by 7.5% YoY.

Newspaper YTD April’s gross adex lowered to 8.1% YoY (vs. 8.6% YoY in YTD March) to RM1.46b. The decent YTD growth in the Newspaper segment was mainly driven by the English segment (+28.5% YoY) underpinned by the strong performance of both STAR (+23.4% YoY to RM359m) and NEW STRAITS TIMES (NST, +23.6% YoY to RM482m). Despite the strong gross adex, we believe the discount rate for STAR will be widened significantly, based on our back-of-the envelope calculations (please refer to figure 8 in the overleaf page). In fact, MEDIA’s print division discounted rate in 1QFY14 has widened to 52.5% (vs 29.2% a year ago) and it recorded RM142m net revenue (or -15% YoY). As a result, we believe the strong YTD gross adex in STAR may not lead to a surge in net adex revenue. The BM segment, meanwhile, grew by 1.5% YoY YTD while the Chinese segment suffered a 6.5% drop due to Chinese New Year holidays coupled with a negative sentiment due to the Malaysia Airlines 370 flight tragedy.

The YTD Pay TV gross adex continued to advance by 30.0% YoY to RM2.5b at the expense of FTA TV, which merely added only 8.3% YoY. On a MoM basis, the Pay TV adex climbed by 18.2% while FTA TV adex weakened by 2.1% due to the lack of meaningful events. MEDIA’s gross TV adex, meanwhile, climbed by 7.2% YoY (or -3.1% MoM) to RM862m in YTD April, thanks to the higher performance across its in-house channels namely 8TV (+9.4% YoY to RM176m); TV3 (+4.0% YoY to RM385m); NTV7 (+2.4% YoY to RM141m) and TV9 (+18.0% YoY to RM160m). 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 RM510m in gross adex or 33% of the total YTD Pay TV gross adex of RM1.5b. On market shares, the Pay TV segment improved by 430 bps YoY to 36.6% at the expense of the FTA TV segment.

Source: Kenanga