We reiterate our UNDERWEIGHT rating on the media sector. February’s gross adex eased moderately by 0.6% MoM, suggesting that the potential pre-GST fever has yet to kick-in. Nevertheless, we still believe that there is a fair chance for the country’s ad spends to pick up in 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. On the corporate earnings front, most of the industry’s incumbents’ gross adex performance remained lacklustre in YTD-February, suggesting a challenging quarter ahead. There is no change to our media companies’ FY15-FY16E earnings as well as target prices. We reiterated our MARKET PERFORM call on Media Prima (MEDIA, TP: RM1.74) and Media Chinese (MEDIAC, TP: RM0.68) while keeping our UNDERPERFORM rating on ASTRO (TP: RM2.98) and Star Publications (STAR, TP: RM2.26).

February’s gross adex moderately lower by 0.6% MoM but climbed 15.0% YoY to RM1.0b. The moderate slower gross adex suggested that pre-GST fever has yet to materialise in February. Apart from that, we also believe that the mild adex decline in February was also caused by: (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 the new year to renegotiate new advert rates. The lower gross newspaper adex (-13.6% MoM) was the main culprit for the uninspiring gross adex performance in February. On a YoY basis, the double-digit growth in February’s gross adex was mainly fuelled by higher adex performance in all media types (except the Newspaper and FTA TV segment) coupled with lower base effect a year ago. On YTD-February basis, the total gross adex grew by 3.7% YoY to RM2.1b, thanks to the continuous strong Pay-TV segment (+17.6%) that partially cushion the weaker performance of the Newspaper (-5.1%) and FTA (-6.6%) segments.

Stripping off the Pay-TV segment contribution, the YTD February gross adex contracted 4.7% YoY. The industry’s incumbents’ YTD-February 2015 performances remain lacklustre. On the newspaper front, STAR appears the only company that recorded flat YoY growth in its newspaper segment. MEDIAC’s gross adex, meanwhile, recorded a moderate decline of 1.4% YoY during the first two-month of the year as a result of the lower adex performance in China Press (-15% YoY) but was partially offset by the higher ad spend in Sin Chew (+7% YoY). For NST, meanwhile, its gross adex slumped 16.6% YoY, no thanks to the slower performance in all its newspapers, namely New Straits Time (- 25%), Harian Metro (-13%) and Berita Harian (-9.6%). On the FTA segment, MEDIA’s FTA TV channels’ gross adex continue to come under pressure and recorded 6.9% YoY decline in the first two months of 2015 with TV9 being the sole channel showed a positive growth (1.5%). On the PAY TV segment front, ASTRO’s gross adex continued its upward trend and grew 17.6%, as a result of the better performance from its top five highest adex generator channels (i.e. ASTRO RIA, ASTRO PRIMA, ASTRO WAH LAI TOI, ASTRO AEC and ASTRO WARNA).

All in all, with an uninspiring adex performance in the first two months of 2015, we believe the industry’s incumbents may continue to face a challenging quarter in 1QCY15. 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 and the recent review of RON95 petrol price (from RM1.70 to RM1.95/little) are likely to push up the inflation rate and thus lowering the consumer purchasing power as well as advertisers’ adspend appetite. Nevertheless, we still believe there is a fair chance for the country’s ad spend to pick up in March due to the potential GST fever, but expected to soften thereafter, bringing the total gross adex annual growth rate to 5.1% in CY15. 

Source: Kenanga