We are keeping our UNDERWEIGHT rating on the media sector. The country’s gross adex growth rate declined to 4.7% in CY14 as a result of the poor adex sentiments led mainly by the on-going government rationalisation plans. Meanwhile, the spill-over effect from the two Malaysia Airline tragedies that occurred in March and July last year further hammered the already weak adex sentiments in 2014. Moving forward, while we believe the on-going subsidy rationalisation and the upcoming GST implementation could continue to weigh on consumer sentiment, there is a likelihood that ad spend may potentially pick up within the next two months (due to the pre-GST fever and the ‘last minute’ attitude adopted by Malaysia’s public in general), especially for durable and luxury items. Meanwhile, on the corporates earnings front, all the media players reported negative gross adex revenue growth in 4QCY14, suggesting lower quarterly earnings ahead. We leave our media companies’ FY14-FY15 earnings forecasts as well as target prices unchanged for now, pending their upcoming 4QCY14 results release. We reiterate our MARKET PERFORM call on Media Prima (MEDIA, TP: RM1.78); Star Publications (STAR, TP: RM2.26); and Media Chinese (MEDIAC, TP: RM0.68) while keeping our UNDERPERFORM rating on ASTRO (TP: RM2.98).

CY14 gross adex climbed at a slower pace to RM14.1b (4.7% YoY vs. our 6.8% forecast and 19.9% YoY growth in CY13). The uninspiring gross adex annual growth rate was mainly dampened by the poor adex sentiments, no thanks to the on-going government rationalisation plan as well the tragedies which hit the aviation industry last year. The resultant weak adex sentiments have lowered advertisers’ appetite in the overall spending in CY14 and thus negatively affected the mainstream media players. On top of that, we also observed that advertisers tend to diversify their interests into the non-traditional media (i.e. In-store (14.3% YoY to RM156m) and cinema segments (15.7% YoY to RM44m) rather than to continue their focus on the mass-market publication in CY14. These actions caused the mainstream media segments, namely newspaper, FTA TV and Pay TV’s gross adex growing merely by 1.7% YoY, 1.0% YoY and 10.4% YoY, respectively, in CY14. On a MoM basis, the total gross adex grew by 5.8% in December (vs. -3.8% in November), as a result of moderate growth in the key segments.

Another challenging quarter for the media incumbents. The lacklustre gross adex performance in 4Q (-7.5% YoY) suggested that the local media players may likely to face yet another challenging result season ahead. Based on our statistic, STAR’s gross print ads in 4Q14 had declined to RM284m (-7% YoY, +0.1% QoQ) while MEDIAC saw its gross print ads dipping to RM210m (-9.7% YoY, +1.7% QoQ). Meanwhile, MEDIA’s gross print adex plunged by 18.8% YoY (or -22% QoQ) to RM342m in 4QCY14, no thanks to the deteriorating adex performance in both Harian Metro and Berita Harian. On the FTA TV segment front, MEDIA’s gross adex slipped 12.6% YoY (+2.9% QoQ) to RM718m in 4QCY14 as a result of the lower adspend recorded in most of its TV channels, namely 8TV (-21.1% YoY or 2.1% QoQ to RM127m), NTV7 (-16.7% YoY or 10.2% QoQ to RM111m) and TV3 (-14.1% YoY or 4.3% QoQ to RM337m). Despite the weak FTA TV adex sentiment, the group’s TV9 channel managed to buck the trend and recorded 5.7% YoY growth (or -4.3% QoQ0 to RM143m. Astro’s gross adex, meanwhile, recorded a relatively flat growth in 4QCY14 to RM1.5b (-0.5% YoY or 11.7% QoQ).

Gloomy adex outlook remains. Moving forward, our gloomy view on the sector’s outlook remains unchanged in view of (i) the persistently high inflation rate, and (ii) on-going subsidy rationalisation. On top of that, the upcoming GST implementation post April 2015 is also expected to push up the inflation rate and thus lowering the purchasing power as well as advertisers’ adspend appetite. Having said that, we do not discount that the country’s adspend may be spurred by the potential GST fever in 1Q15, but expected to soften thereafter, bringing the total gross adex annual growth rate to 5.1% in CY15.

Source: Kenanga