Our UNDERWEIGHT call on the media sector remains unchanged. The country’s January gross adex growth rate declined to -5.9% YoY as a result of the poor adex sentiment, led mainly by the rising cost of living. Moving forward, while we believe that the upcoming GST implementation could weigh on consumer sentiment, there is a likelihood that ad spends may potentially pick up in both February and March (due to the pre-GST fever and the ‘last minute’ attitude adopted by the Malaysian public in general), especially for durable and luxury items. Meanwhile, on the corporate earnings front, all the media players reported negative gross adex revenue growth in 4QCY14, suggesting lower quarterly earnings ahead. We leave our media companies’ FY14-15E earnings 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).

January gross adex remains sluggish at RM1.0b (-5.9% YoY and -16.4% MoM). The uninspiring January gross adex change of -5.9% marked the first year-on-year decline since 2012 and would have broadened to -9.3% should we stripped off the Pay-TV segment contribution. The decline is suggesting that consumer sentiment in January remains dawdling despite the Lunar New Year which was just around the corner. On a MoM basis, the total gross adex dipped by 16.4% in January (vs. +5.8% in December). The lower MoM growth was not a surprise given that advertisers tend to spend aggressively to meet their annual adex budget during the year-end and conserve their A&P budget in the first two months of a new year to renegotiate new advert rates. In-store segment (+13.9% YoY to RM14.3m) gross adex was the only media type that recorded a positive YoY growth in January vis a vis the other mainstream media segments namely newspaper, FTA TV and Pay TV, which dipped by 9.1%, 10.6% and 0.6%, respectively. These suggested that advertisers continue to diversify their interests into the non-traditional/specific media rather than continue their focus on the mass-market publication.

Challenging 4Q14 results. Most of the media companies, except ASTRO (where the group is expected to release its 4Q15 results in the early of March), are scheduled to release their respective 4QCY14 results this week. The results are expected to remain weak judging from the lacklustre gross adex performance in 4Q (-7.5% YoY). Based on our earlier 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). For the full financial year, we expect STAR, MEDIA, and MEDIAC to register core net profits of RM130m (-9% YoY), RM139m (-35% YoY) and RM128m (-19% YoY), compared to the consensus estimate of 4%, 27% and 16%, respectively. ASTRO, meanwhile, is expected to show positive net profit growth in FY15 (13% YoY to RM505m vs. the street’s estimate of 15% YoY) given that the group’s earnings are very much dependent on subscribers' growth rather than the adspend performance.

Our cautious 2015 adex outlook remains unchanged. Moving forward, our gloomy view on the sector’s outlook remains where we believe the upcoming GST implementation post April 2015 is likely to push up the inflation rate and thus lowering the purchasing power as well as advertisers’ adspend appetite. Nevertheless, the recent review of the petrol prices as well as the electricity tariff is expected to arrest the rising cost of living temporarily. On top of that, we also 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