Our NEUTRAL call on the sector remains unchanged. The country’s gross adex growth rate deteriorated by 14% MoM in January as a result of the continued guarded spending mode. On the corporate earnings front, while all the media players are expected to report a sluggish topline performance (as a result of the lacklustre gross adex revenue growth in 4QCY15), bottom-lines could be somehow cushioned by more stringent cost control measurements. Moving forward, while we believe advertisers are likely to continue staying cautious in 1H16 amid the uncertain economic scenario and weaker Ringgit, the adex sentiment is expected to improve gradually in the 2H16, thanks to the several adex-friendly events. We leave our media companies’ FY15-FY16 earnings forecasts as well as target prices unchanged for now, pending their upcoming 4QCY15 results release. ASTRO (TP: RM2.93) remains the only OUTPERFORM rated stock in the sector due to its relatively resilient earnings and decent dividend yield. We reiterated our MARKET PERFORM call on MEDIA (TP: RM1.48), MEDIAC (TP: RM0.61) and STAR (TP: RM2.36).

January’s gross adex retreated, at -14.0% MoM (or -7.2% YoY) to RM579m. The uninspiring January gross adex marked the first month-on-month decline since October last year and the 11th consecutive months of deterioration if we were to compare the year-on-year change. The decline is suggesting that consumer sentiment in January remains dawdling despite the Lunar New Year just around the corner. On a MoM basis, the total gross adex dipped by 14% in January (vs. +0.8% in December). The lower MoM gross adex growth was not a surprise given that advertisers tend to spend aggressively to meet their annual adex budget during the year-end and conserve their A&P budget in the first two months of a new year to renegotiate new advert rates. All the media types have recorded negative MoM growth in January suggesting that advertisers were still taking cautious approaches in adspend amid rising cost of doing business. Note that with the effective month of January 2016, Pay TV channels are no longer reporting for their adspend to Nielsen given that the latter’s Pay TV subscription has been terminated.

Sluggish 4Q15 results. Most of the media companies, except ASTRO (where the group is expected to release its 4Q16 results in early March), are scheduled to release their respective 4QCY15 results next week. The results are expected to remain weak judging from the lacklustre gross adex performance in 4Q (-3.2% YoY, or -9.3% YoY ex-Pay TV segment). Based on our earlier statistic, STAR’s gross print ads in 4QCY15 declined to RM255m (-10.7% YoY, +2.1% QoQ) while MEDIAC saw its gross print ads dipping to RM195m (-6.9% YoY, +7.3% QoQ). Meanwhile, MEDIA’s gross print adex plunged by 11.1% YoY (or -14.4 QoQ) to RM304m in 4QCY15, no thanks to the deteriorating adex performance in its entire print segment. On the FTA TV segment front, MEDIA’s gross adex slipped 6.3% YoY (+9.7% QoQ) to RM673m in 4QCY15 as a result of the lower adspend recorded in most of its TV channels, namely 8TV (-2.3% YoY or 12.2% QoQ to RM125m), NTV7 (-15.4% YoY or 23.2% QoQ to RM94m) and TV3 (-9.2% YoY or 10.2% QoQ to RM306m). Despite the weak FTA TV adex sentiment, the group’s TV9 channel managed to buck the trend and recorded a 4.3% YoY growth (or 0.2% QoQ to RM149m). Astro’s gross adex, meanwhile, recorded a mild growth in 4QCY15 to RM1.48b (-1.7% YoY or 8.5% QoQ). Having said that, while we believe the incumbents’ topline could be dampened by the slower adspend, their bottom-line could somehow be safeguarded by more stringent cost control measurements in newsprint consumption and OPEX. For the full financial year, we expect STAR, MEDIA, and MEDIAC to register core net profits of RM119m (-14.3% YoY), RM151m (6.9% YoY) and RM123m (2.6% YoY), compared to the consensus estimate of -18.6%, 4.6% and 0.9%, respectively. ASTRO, meanwhile, is expected to show positive net profit growth in FY16 (6.8% YoY to RM555m vs. the street’s estimate of 18% YoY) given that the group’s earnings are very much dependent on subscribers' growth rather than the adspend performance.

Our cautious 2016 adex outlook remains unchanged. We expect the adex sentiment to remain cautious in 1H16 in light of the current global economic situation and the position of MYR. On top of that, the rising cost of living as a result of rice subsidy removal, electricity tariff adjustment as well as a series of toll hikes are likely to push the cost of doing business higher, which could compel some advertisers to continue adopting a cautious mode. Having said that, we expect the adex sentiment to improve gradually moving towards 2H16, thanks to several adex-friendly events, i.e. Summer Olympics and UEFA Euro cup, which are scheduled to take place from mid-2016 onwards. All in all, we expect the country’s adspend (expay TV segment) to improve by 5.5% YoY in CY16 as a result of the low base effect. 

Source: Kenanga Research - 19 Feb 2016