We reiterate our NEUTRAL rating on the media sector. April’s gross adex has deteriorated by 8.6% MoM, lowering its YTD growth to 4.2% YoY (vs. YTD March of 6.2% YoY). The weakening of April’s gross adex is within our expectation following the strong month-on-month gain in March (+15.9% MoM) as a result of the pre-GST fever. In light of the weak adex sentiment, advertisers were seen spending more warily during the first month of the GST implementation with limelight focused on the targeted audience-centric media types rather than the mass-market channels. There is no change to our media companies’ FY15-16E earnings as well as target prices, pending their upcoming results. 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).

April’s gross adex dipped 8.6% MoM (vs. +15.9% MoM in March), narrowed its YTD growth to 4.2% YoY. The weaker performance in April’s gross adex on a MoM basis was not a surprise as the market generally adopted a cautious mode post the GST implementation (since 1st of April) as opposed to the pre-GST fever driven March performance. The vulnerable gross adex in April was mainly led by lower contribution from all media types, except the Cinema (+15.3% MoM) segment. On YTD April basis, the total gross adex growth narrowed to 4.2% YoY (vs. YTD March of 6.2% YoY) to RM4.4b, thanks to the continuous strong Pay-TV (+22.9%), albeit partially offset by the lower contribution from both the FTA-TV (-7.1%) and Newspaper (-8.2%) segments.

Stripping off the Pay-TV segment contribution, the YTD April gross adex weakened by 6.7% YoY to RM2.5b. Belt-tightening again. Advertisers appeared to be tightening their belts again since the implementation of GST. Despite the weak adex sentiment, advertisers tend to lower their gross ad spends in the mass market focused media rather than the nontraditional media types. The traditional mass markets focused adex contributors, namely the PayTV, FTA, and Newspaper segments weakened by 6.9% MoM, 9.2% MoM and 11.7% MoM, respectively, in April in contrast to the low-to-mid single digit drop in the non-traditional segments (i.e. Radio, magazines, In-store and Cinema). This suggested that advertisers tend to shift their interest to the targeted audience-centric media types during time of uncertainties.

More circumspect modes adopted in the newspaper rather than the TV segment. During the first month of post GST implementation, advertisers have adopted a more cautious approach in the newspaper segment (-11.7% MoM) rather than the TV segment (-7.7% MoM). Delving deeper, the Indian language newspapers' gross adex has deteriorated the most at 31.8% MoM followed by the Chinese (-17.0% MoM), English (-8.9% MoM) and BM (-2.4% MoM). On the print media incumbents’ front, MEDIAC suffered the most with its gross adex declining by 17.5% MoM, which lowered its YTD April performance to -4.5% YoY vs. the newspaper segment of -8.2% YoY. The STAR and NSTP, meanwhile, saw their gross adex reduced by 6.8% MoM and 4.9% MoM, lowering their YTD performance to -5.6% and -14.9%, respectively.

Pay TV segment appeared more resilient post GST. Despite recording a negative growth, the Pay TV segment’s gross adex seemed more buoyant than the FTA segment, where the former weakened by 6.9% MoM in contrast to the latter’s 9.2% decline. We believe this was aligned with the overall market trend where the Pay TV allowed advertisers to broadcast their ads to the specific audience as compared to more mass market centric approach in the FTA segment. MEDIA’s gross adex, meanwhile, has declined by 9.9% MoM to RM197m, narrowing its YTD April gross adex revenue to RM806m (or -6.6% YoY).

Our cautious 2015 adex outlook remains. Moving forward, our gloomy view on the sector’s outlook remains where we believe the GST and the current higher cost of living may lower 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 - 19 May 2015