4QCY19 adex performance data as collected by Nielsen was stronger on a QoQ basis, as expected thanks to the year-end holiday seasons. However, a full-year basis total gross adex persists to show the diminishing relevance of traditional media channels to corporates, as digital platforms become the preferred solution. FTA TV and newspapers were impacted the most, declining by 11% and 17% in CY19, respectively. 1QCY20 could see a seasonal bump from Chinese New Year while sporting events during the mid-year could divert more eyes to media channels. However, the seasonal bonus may not be an overall win for traditional media channels if digital platforms also see strong or stronger traction from this. At the very least, we see that industry players acknowledge the digital threat and are looking to keep expenses lean for long-term sustainability. Post-update, we maintain our NEUTRAL call for the sector, and upgrade our call for MEDIA (TP: RM0.225) to MARKET PERFORM from UNDERPERFORM as the stock’s earnings challenges could be well reflected in its current share price. Other calls remain unchanged.

Digitalisation going full throttle. Based on Nielsen’s 12MCY19 total gross adex statistics, total value registered at RM5.94b (+2% YoY). The growth was thanks to digital adex making up RM781.4m of the yearly value. Excluding this portion, the industry was at a 12% decline. The shift from traditional media to digital outlets could be attributed by the more interactive and engaging nature of the latter, which could also be argued as the more efficient means for present-day marketing and advertising. Key platforms unsurprisingly contribute most of the decline, with free-to-air television (FTA TV) and newspapers lost 11% and 17% YoY of their respective gross adex results. Cinema (+13%) was the outlier, having benefited from many successful film releases in 2019, albeit being a small proportion to the industry.

QoQ, 4QCY19 total gross adex outperformed 3QCY19 with an 11% growth. While 3QCY periods are generally weaker with the absence of festivities, year-end periods are spurred by wider FTA TV audiences and more vibrant advertising environment with school holidays and festivities (i.e. Christmas). The said FTA TV grew by 14%, though newspapers were relatively stagnant. Possibly, digital channels (+9%) could have taken up newspaper channels’ advertising share.

Outlook. 1QCY20 may see better light with Chinese New Year around the corner. Video platforms may see some boost in relevance in the mid-year thanks to major sporting events (i.e. Euro 2020, Tokyo Olympics), but of which digital media may also thrive from being the more accessible option to consumers. Acknowledging that digitalisation is here to stay, corporates are exploring means to widen their online presences while minimising the impact from the diminishing need for conventional media outlets via cost optimisation measures. Notably, STAR’s digital roadmaps include expanding its existing platforms (i.e. Star Online, Star Property, Dimsum) and to enable cross-selling opportunities while MEDIA looks towards strategic acquisitions to enlarge its digital footprint in addition to strengthening non-advertising revenue streams (i.e. film, commerce). Staff downsizing in MEDIA’s print segment (News Straits Times Press, to be completed March 2020) also came out of necessity with the overall group’s sustainability in mind.

Maintain Neutral on the Media sector. While there is a lack of positive re-rating, we reckon that incumbent media players could do well in countering headwinds brought about by the softening of traditional adex channels. With this sector update, we upgrade MEDIA (TP: RM0.225) to MARKET PERFORM from UNDERPERFORM. The stock previously saw a surge in interest with substantial acquisitions of stake from Tan Sri Syed Mokhtar Al-Bukhary which sparked the possibility of the privatisation of the ailing media group. However, losses continue to prevail with operational costs over-run with a declining top-line trend; hence, our initial sell on the stock. We believe the present price levels are fair with the negatives priced in, based on our unchanged valuations of 0.52x FY20E P/NTA (-1.5SD over its 3 year mean). Our sole OUTPERFORM remains to be ASTRO (TP: RM2.00) which we like as it continues to offer high dividend yields (>7%) and trade at undemanding valuations (1-year Fwd. PER of 10x vs. our media coverage of 20x).

Source: Kenanga Research - 20 Jan 2020