Nielsen has recently introduced digital-adex as a component to the total gross adex, which appears to account for 13% of the overall market. However, the overall industry continues to be in a lull in 2Q19, which declined by 16% YoY and 15% YTD when excluding digital adex, being only tracked since Jan 2019. QoQ, total gross adex increased by 13% to RM1.52b from RM1.34b premised on a seasonally stronger 2Q. PostNielsen numbers, we maintain our NEUTRAL view on the sector, as players implement strategies to ramp up their respective plays into digital advertising. Our UP calls for MEDIA (TP: RM0.260), STAR (TP: RM0.600) and MEDIAC (TP: RM0.165) are maintained. Our sole OP call remains to be ASTRO (OP, TP: RM2.00), which commands high dividend yields (>7%) while also trading at cheap valuations relative to the sector.

Clearer picture of digital-adex. Nielsen has recently introduced digital-adex (not accounting for mobile in-app spend, social media and search engine spends) as a component to the total gross adex, which appears to account for 13% of the overall market. However, the overall industry continues to be in a lull in 2Q19, which declined by 16% YoY and 15% YTD when excluding digital adex, being only tracked since Jan 2019. The drag came from the usual suspects; FTA TV (-18%), Newspaper (-18%), Radio (-12%), and Magazines (-16%), stemmed by the persistent digitalisation of advertising mediums in addition to a growing customer preference for interactive content. Meanwhile, Cinema and In-Store media increased by 10% and 12%, respectively, but collectively only accounted for 5% of the market. As traditional adex still outweighs digital-adex, we believe that players under our coverage might not see significant earnings improvement from the digital space despite their strategy and investment to boost on-line presence. On the flipside, this could be a double whammy given the diminishing relevance of traditional adex to advertisers.

QoQ, total gross adex increased by 13% to RM1.52b. This is typically the case as 2Q is seasonally stronger due to Hari Raya celebrations driving better pick-up rates in all traditional media segments such as FTA-TV (+20%), Newspaper (+7%), and Radio (+15%) during this 2Q19 period. Having said that, we expect 3Q to be weaker given: (i) the lack of major sporting events, (ii) weak consumer sentiment, and (iii) continual digital disruptions.

Gearing back in focus. Overall, we gathered that players ex-Astro are garnering and streamlining their efforts to ride the digital trend, given the continual challenging outlook. With STAR introducing its digital eco-system, involving the use of AI to capture and target audience needs according to individual consumption habits, potentially garnering better cross-selling opportunities based on its many existing platforms (i.e. Star Online, Star Property, Dimsum). Meanwhile, MEDIAC is seeing traction in its one-stop solutions to advertisers, which includes content creation, editing services and talents for promotional materials. In comparison, we believe MEDIA remains the leader in terms of digital initiatives among the three ex-Astro players, given its Odyssey Transformation strategy as the group has already acquired multiple digital brands while brewing its own. Overall, we commend the media players in embracing the digitalisation process, while leveraging on key expertise, which includes journalism and content creation. However, we believe the bottom has yet to be seen given that traditional media still forms the lion’s share of the group’s contribution.

Sector maintained at NEUTRAL The sector’s prospect remains challenging amid the soft adex outlook while the digital trend continues to reshape the media industry. Advertisers continue to switch from traditional media type (i.e. TV and Print) given the growing penetration rate in both broadband and mobile cellular segments. Our sole OUTPERFORM stock is ASTRO (OP, TP: RM2.00) given its high dividend yield (>7%) and cheap valuation (Fwd. FY20E PER of 11x vs. our media coverage of 15x). UNDERPERFORM ratings on MEDIA (TP: RM0.260) and STAR (TP: RM0.600) and MEDIAC (TP: RM0.165) are maintained, given the uninspiring outlook in the traditional adex space.

Source: Kenanga Research - 19 Jul 2019