Our NEUTRAL stance on the sector remains unchanged. August’s gross adex has deteriorated by another 0.9% MoM, lowering its YTD growth to -1.3% YoY (vs. YTD July of -0.1% YoY). The softening of August’s gross adex was aligned with the growing concerns over the country’s economy outlook as a result of the weakening Ringgit. While some advertisers have shifted to more mass market focused mediums in August, we believe this trend may likely to reverse ultimately given that targeted audience-centric media types are likely to provide much better advertising yield as opposed to the former. All the key media companies have recorded lacklustre QTD August gross adex, suggested a challenging quarter ahead. There are no changes in our earnings forecasts and target prices for all the media companies. We reiterated our OUTPERFORM call on ASTRO (TP: RM3.30) due to its resilient earnings and decent dividend yield and MARKET PERFORM ratings on Media Prima (MEDIA, TP: RM1.22), Media Chinese (MEDIAC, TP: RM0.58) and Star Media (STAR. TP: RM2.60).

Guarded mode. August’s gross adex softened by another 0.9% MoM (vs. -7.0% MoM in July) as a result of a lower adspend in the PayTV segment. Nevertheless, the newspaper and FTV segments’ adspend have shown growths unexpectedly and improved by 2.8% MoM each, despite the growing concerns over the country’s economy outlook as a result of the weakening Ringgit. Note that the MYR has depreciated against the dollar by 9.7% in August or 19.9% YTD August, which could lead to some advertisers revisiting their A&P budgets. Having said that, while we believe advertisers will continue to adopt a cautious mode over the next two months, there is a likelihood for the country’s adspend to improve in 4Q when advertisers tend to rush to finish their annual budget.

The soft gross adex in August was mainly led by lower contribution from PayTV segment (-4.3%), partially due to the lower adspend recorded in Astro Wah Lai Toi and Astro AEC channels. The newspaper and FTA segments, however, recorded moderate growth of 2.8% each, following better gross adex revenue in the Chinese language division. The former segment was mainly driven by better Chinese’s newspaper gross adex revenue (on the back of the higher contribution from MEDIAC (24.3% MoM)) while the latter mainly benefited from higher 8TV and NTV7 channels' contributions. On YTD August basis, the total gross adex growth contracted to -1.3% YoY (vs. YTD July of -1.0% YoY) to RM9.0b, no thanks to the weak performance of FTA (-11.5%) and Newspaper (-10.2%) segments. PayTV segment, meanwhile, has undergone three consecutive months of shrinkage and narrowed its YTD growth to 11.8% YoY.

Stripping off the PayTV segment contribution, the YTD August gross adex weakened by 9.1% YoY to RM5.2b. Chinese-targeted audience advertisers have shifted to more mass market focused mediums. The latest August’s data suggested that Chinese targeted audience advertisers have altered their preference to the mass market focused media (i.e. newspaper and FTA channels) at the expense of the targeted audience-centric media types (i.e. PayTV, Magazines, In- Store, and Cinema). The shift could perhaps be attributed to a more stringent spending behaviour adopted by the Chinesetargeted audience advertisers as a result of the challenging economy and MYR outlook. We believe these advertisers intend to achieve maximum advertising reach through mass market focused media during uncertainty. Nevertheless, we opined advertisers will still consider shifting their spending, even partially, to those targeted audience-centric media types ultimately given the latter could provide much better advertising yield.

QTD gross adex revenue appears challenging. All the media companies have reported a vulnerable gross adex in QTD August. On the print segment front, STAR’s gross adex declined by 4.7% QoQ (or 9.0% YoY) while MEDIAC dipped by 9.7% QoQ (or 12.5% YoY) similar to NSTP (-9.3% QoQ; -14.7% YoY). On the FTA segment front, MEDIA’s gross adex was lower by 7.3% QOQ (or -14.9% YoY), while Astro weakened by 11% QoQ (or +5% YoY). With another month to go to complete the 3QCY15 season, there is a likelihood the industry players may face yet another challenging quarter ahead.

Gloomy adex outlook remains. We believe the adex spending sentiment will continue to be overshadowed by: (i) the current rising cost of living, (ii) higher cost of doing business as a result of the weakening Ringgit, and (iii) the weak consumer sentiment caused by the GST implementation, which the market is still digesting. We do not discount that the current weak consumer sentiment could lead advertisers to re-visit their annual A&Ps budget. 

Source: Kenanga Research - 21 Sep 2015