Our NEUTRAL stand on the sector remains unchanged. October’s gross adex has returned to the descending mode, by 2.2% MoM, narrowing its YTD growth to -3.2% YoY. We believe the weak adex sentiment was led mainly by the rising cost of living following a series of pricing adjustment in the transportation sector coupled with the persistently weak local currency. Moving forward, while we believe advertisers are likely to continue staying cautious amid the uncertain economic scenario and weaker Ringgit, we do not discount that the country’s adspend may improve in the seasonally strong 4Q. There are no changes in our earnings forecasts and target prices for all the media companies, pending their upcoming 3QCY15 results releases. 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: RM1.16), Media Chinese (MEDIAC, TP: RM0.53) and Star Media (STAR. TP: RM2.36).

Turning cautious again. Unlike a mild rebound recorded in September’s gross adex (+3.4% MoM), the latest October’s data suggested that advertisers have reverted to their cautious mode resulting in a 2.2% MoM dip in advertising spending. This is not a surprise given the escalating cost of living after a series of a hike in toll rates, petrol prices, and public transportation fares. On top of that, the persistently weak MYR (against USD) may have also led some advertisers to rationalise their A&P budgets, thus dampening the adspend sentiment.

The sluggish performance in October’s gross adex was mainly led by softer contribution from Newspaper (-5.1% MoM) and Pay TV (-1.7% MoM) segments. The former was mainly dragged by weaker Malay (-17.1% MoM) and Chinese-language (- 3.6% MoM) segments but partially cushioned by better English segment (6.0% MoM) contribution, thanks to the Edge newspapers (316% MoM) which managed to resume its usual RM3.0m-RM4.0m range monthly gross adex revenue following the revoking of the suspension order by the Malaysian High Court on 21-September. On the Pay TV segment, the weakening of October’s gross adex was mainly due to the absence of adex recorded in several channels (i.e. National Geography and Star World channels), which we believe was caused by technical issues.

Stripping off the Pay TV segment contribution, the YTD October gross adex weakened by 9.5% YoY to RM6.5b. Delving deeper, STAR’s October gross adex had rebounded to RM86m (+4.3% MoM) after experiencing a fall of 4.4% MoM a month ago, but continued to suffer a dip of 8.8% as compared to the same period last year. Meanwhile, MEDIA’s gross adex faded by 1.9% MoM (or -8.1% YoY) as a result of the softener ad spend in China Press (-11% MoM to RM17m) while its flagship newspaper – Sin Chew daily’s adex continued to remain solid. MEDIA’s gross print ads, on the other hand, slumped 12.4% MoM to RM104.5m in October as a result of the dip in Harian Metro (-23% MoM), which we believe was mainly led by some A&P budget rationalisation. On the FTV segment front, MEDIA’s gross adex was lowered moderately by 0.6 MoM in October, no thanks to the weak performance of all Malay TV channels (i.e. TV3 and TV9). On YTD October basis, the national TV station’s gross adspend was depressed by 9.5% YoY to RM2.1b as the mild adex improvement in TV9 was not enough to offset the sluggish performance of the remaining channels. ASTRO’s October gross adex, meanwhile, softened by 1.7% MoM (or -12.7% YoY) due to the absence of adex recorded in several channels. Although the group’s YTD gross adex revenue had remained positive (+7.1% YoY) its net earnings impact is expected to be minimal due to its hefty discount rate of more than 90%, based on our back-of-the-envelope calculations.

Cautious mode remains. We believe the adex spending sentiment will remain cautious for the remainder of 2015 in light of the current global economic situation and the position of MYR. On top of that, the recent hikes in both toll rates and petrol prices are likely to push the cost of doing business higher, which could compel some advertisers to re-visit their annual A&Ps budgets moving forward. Having said that, in view of the 4Q being the strongest quarter seasonally, there is a likelihood for the country’s adspend to improve as advertisers tend to rush to finish their annual budget in that period. 

Source: Kenanga Research - 19 Nov 2015