We reiterate our NEUTRAL rating on the media sector. March’s gross adex advanced by 15.9% MoM, suggesting that the much-anticipated pre-GST fever finally kicked-in as well being boosted by the lower base effect in February. Despite the strong performance in March, its YTD adex growth remains lacklustre, suggesting a challenging quarter ahead. There is no change to our media companies’ FY15-16E earnings as well as target prices, pending on their upcoming results released. We reiterated our MARKET PERFORM call on ASTRO (TP: RM3.38), Media Prima (MEDIA, TP: RM1.74) and Media Chinese (MEDIAC, TP: RM0.66) while keeping our UNDERPERFORM rating on Star Publications (STAR, TP: RM2.26) due to the lack of earnings catalyst and limited capital upside from here. Having said that, its high dividend yield could provide some cushions to its share price.

March’s gross adex grew 15.9% MoM (vs. -0.6% MoM in February) and 6.2% YoY on 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 February month as well as support from pre-GST fever. The better gross adex in March was mainly led by higher contribution from all media types, except Radio (-2.0% MoM) and Cinema (-28.9% MoM) segments. On YTD March basis, the total gross adex grew by 6.2% YoY to RM3.3b, thanks to the continuous strong Pay-TV (+26.3%), albeit it was partially offset by the lower contribution from both the FTA-TV (-5.7%) and Newspaper (-6.6%) segments.

Stripping off the Pay-TV segment contribution, the YTD March gross adex weakened by 5.3% YoY to RM1.9b. Another challenging quarter for the media incumbents. The lacklustre gross adex performance in 1QCY15 (-5.3% YoY after stripping off the Pay-TV segment contribution) suggested that the local media players may likely be facing yet another challenging results season ahead. Based on our statistic, STAR’s gross print ads in 1QCY15 declined to RM252m (-3.5 YoY, -11.6% QoQ) while MEDIAC saw its gross print ads dipping to RM214m (-2.9% YoY, +1.9% QoQ). Meanwhile, MEDIA’s gross print adex plunged by 15.9% YoY (or -12.6% QoQ) to RM299m in 1QCY15, no thanks to the deteriorating adex performance in both Harian Metro and NST. On the FTA-TV segment front, MEDIA’s gross adex slipped 5.5% YoY (-15.3% QoQ) to RM609m in 1QCY15 as a result of the lower adspend recorded in both TV3 (- 9.8% YoY or -25.0% QoQ to RM253m) and NTV7 (-9.7% YoY or -11.5% QoQ to RM98m). Meanwhile, there is also a tendency where advertisers tend to shift their focus from the FTA-TV to Pay-TV segment (i.e. Astro) as the latter managed to buck the trend and recorded 26.3% YoY growth (or -5.0% QoQ) to RM1.43b. Having said that, despite the strong gross adex recorded in the Pay-TV segment in 1QCY15, the net earnings impact to Astro is expected to be minimal due to its hefty discount rate of more than 90%, based on our back-of-the-envelope calculation.

Followed the segment leader. The aggregate MEDIA’s Malay newspapers (Harian Metro and Berita Harian) gross adex has deteriorated by 12.3% YoY in 1QCY15 vs. the BM segment of 15.0% YoY while the STAR’s gross adex was lowered by 3.5% YoY in contrast to the English segment of -8.5% YoY during the same period. Thus, suggesting that advertisers still have the tendency to focus on advertising in the segment leader in both the BM and English segment (i.e. Harian Metro in the BM segment; the STAR in the English Segment). The trend, however, differed in the Chinese segment where MEDIAC’s gross adex deteriorated more than the segment (-2.9% YoY vs. -1.5% YoY) performance in 1QCY15. We believe, Oriental Daily Newspaper (a free Chinese-language daily newspaper) has gathered some traction at the expense of MEDIAC given the former’s gross adex surging 27% YoY to RM13.8m in 1QCY15. Having said that, we believe advertisers will still continue to rely on MEDIAC moving forward given the group controlled more than 70% Chinese daily circulation market share in the country with c.87% market share in the Chinese adspend.

Our cautious 2015 adex outlook remains unchanged. Moving forward, our gloomy view on the sector’s outlook remains where we believe the GST and the recent reviews 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. Post-GST, we expect the market to take 3-6 months to digest the weak consumer sentiment, bringing the total gross adex annual growth rate to 5.1% (or 0.2% ex-Pay TV segment contribution) in CY15.

Source: Kenanga Research - 22 Apr 2015