9MCY17 gross adex remained weak at RM4.6b (-13.6% YoY). The prolonged weak adex sentiment as a result of the rising cost of doing business continued to dampen the adspend during 9M17. The vulnerable gross adex in 9M17 was led by all media types, except the Cinema (+36%) segment, as the continued weak performance of the key segments, namely Newspaper (-22%), and FTA (-4%), overwhelmed the former. The weak YTD adex performance was not a surprise given that the country’s consumer sentiment index continued to stay below the 100-point optimism threshold at 80.7 in 2Q17. The index, however, has shown a marginal improvement compared to the 1Q17 number (at 76.6) due to the improvement in the key economic indicators and stable currency. On sequential performance basis, the 3Q17 gross adex dipped by 8.4% QoQ (vs. +14% QoQ in 2Q17) despite numerous sport events given advertisers may have spent their marketing budget earlier during the 2Q to attract early eyeballs. The weak adex performance in 3Q17 was mainly dampened by all the key segments, except the Radio segment, which climbed 6.5% during the quarter.

MEDIAC and STAR – showing signs of improvement sequentially but…. Both MEDIAC and STAR’s print gross adex shown sequential improvement of 1.8%/5.3% QoQ (or -12%/-31% YoY, figure 5) to RM144m/RM149m, respectively. We believe, the growth was likely fuelled by higher front cover advertisements (from both the property and consumer staple's players) as well as classified ads. Meanwhile, we also do not discount the incumbents providing a higher discount rate to advertisers to spur adspend, thus encouraging gross adex numbers may not translate into higher net advertisement revenue for the quarter. MEDIA’s print gross adex, on the other hand, suffered a double-digit dip of 11.6% QoQ (or -18% YoY) to RM215m in 3Q17 as the higher English segment contribution was not enough to offset the lower performance from the Malay segment.

FTA TV gross adex lowered 3.8% YoY in 9M17. Despite the overall FTA TV adex remaining weak, the ALHIJRAH TV channel bucked the trend and recorded a strong 319% YoY growth (to RM455m) in 9M17. We believe the growth may be somewhat inflated in view of the fewer TV viewership. MEDIA’s gross TV adex, on the other hand, reversed from its positive trend in the previous quarter and dipped by 13% QoQ in 3Q17. The weak performance was mainly dampened by the lower contribution from the TV3 (-18% QoQ), TV9 (-24%) and NTV7 (-14%) channels as a result of the absence of major festival celebrations.

Proposed regulated prices for DTTB. Despite the commercial negotiations on the transmission cost (under the Digital Terrestrial Television (DTT) Broadcasting service) is still on-going (with MYTV), MCMC has proposed to regulate the DTT multiplexing prices recently. Under the Review of Access Pricing dated 6 October, the authority has proposed to regulate the DTT transmission price for the year 2018-2020 based on the following rates: - (i) RM7.2m/RM8.6m/RM7.8m per year for each SD channel and (ii) RM11.4m/RM13.5m/RM11.5m per year for the HD channel, respectively. Although the proposed HD channel cost (RM45m – RM54m, based on four HD channels) appear 50%-80% higher as compared to MEDIA’s current transmission cost (at c.RM30m/year), it is still c.50% cheaper as compared to the rate that was proposed by MYTV earlier. All in, we understand that MEDIA is still undertaking a commercial negotiation with MYTV with an aim to lower the price to the current annual rate.

Challenging time remains in 2017. While we expect a gradual recovery in adex growth in the remaining months (thanks to holiday festivals as well as a seasonality factor), these positive feel-good factors are not likely to provide any strong boost to the traditional media during the transformation phase. Change in consumer habits, behaviour, lifestyle and technology have reduced the barrier to entry of social networks that has created a massive disruption to the traditional media. Thus, in view of the subdued adex outlook (as a result of the rising cost of doing business) and heightened competition (that followed the emergence of social networks and digital media), we believe the country’s gross adex (ex-Pay TV) will continue to face a challenging time and weaken by 10.5% YoY in CY17 after the 10% YoY dip a year ago.

Source: Kenanga Research - 19 Oct 2017