3QCY21 total gross adex compiled by Nielsen shows a 3.3% QoQ drop whereas an 18% improvement YTD. FTA television adex rose by 50% YTD which was further boosted by the addition of new channels to the FTA TV coverage namely, TVS DTT and TV6 DTT in 3QCY21. Moreover, FTA TV continues to gain a higher market share in the adex industry as its up by 2ppt QoQ and 13% YTD (Figure 5 – Appendix). We note that without the contribution of digital adex to the media industry total adex would have plunged by 7% QoQ. We believe post lockdown and reopening of economic sectors will prompt advertisers to advertise heavily across all media platforms, thus improving adex in 4QCY21 and not only that, non-performing segments could see a pick up as well. We maintain OVERWEIGHT on the sector with ASTRO (TP: RM1.22) and MEDIA (TP: RM0.690) as our top picks due to Astro’s attractive dividend yield of 7.9% and competitive advantage over other Internet Service Providers as the group can bundle Astro branded internet speeds with their content, and MEDIA’s strong hold in overall adex and improved margins.

FTA TV leading the way. Data gathered by Nielsen shows that total gross adex grew by 18% from RM3.5b in 9MCY20 to RM4.2b in 9MCY21 thanks to a 50% increase in FTA adex which now contributes a larger percentage to total adex (from 48% in 9MCY20 to 61% in 9MCY21). The increase in FTA adex was also contributed by the addition of new channels in coverage namely, TVS DTT and TV6 DTT from July 2021 onwards. Unsurprisingly, cinema adex plunged by 89% to RM5.6b whereas in-store media rose by 42%. The print segment saw an overall drop in adex by 24% (23.8% in newspapers and 23.2% in magazines), however, FTA adex’s stronger influence in the adex industry managed to offset the fall in total adex. Moreover, we note without digital adex overall adex would have seen an improvement of 22% YTD (+4ppt than with digital adex).

QoQ, 3QCY21 saw a 3.3% decline as majority of the segments like newspapers and radio saw a drop of 22% and 29% respectively whereas FTA adex remained flattish (-0.2%), thus, not contributing much to overall adex. We believe the poor performance QoQ is the result of the nationwide lockdown in 3QCY21 that dragged down adex. Interestingly, without the contribution of digital adex, which saw an addition of 4 websites to Nielsen’s digital coverage, overall adex could have toppled by 7%. This indicates that the adoption of digital adex will continue to growth, mostly unhindered by shifts in the economic climate due to its ease of use and outreach.

Outlook. With the economy gradually reopening, we believe 4QCY21 will see a surge across all media platforms as post lockdown consumers will have the urge to splurge, thus, prompting advertisers to advertise heavily. Year-end seasonalities should also boost overall spending should there be no unexpected surprises in terms of movement control implementation. Along with an improvement in adex, we reckon non-performing segments may begin to recover in 4QCY21, such as STAR’s event and exhibition segment which contributed c.5% to the group’s revenue pre-Covid and is currently registering c.1% growth. The improvement in adex will also help to soften the losses in STAR’s print and digital segment moving forward.

We maintain our OVERWEIGHT call on the sector. Recall that we upgraded the sector’s call from NEUTRAL in our latest Strategy report. As the economy begins to gradually reopen in 2HCY21 thanks to higher vaccination rates and reduction in Covid-19 cases we believe this will positively impact the media players moving forward thus making this sector a strong contender for a recovery play. All in, we continue to like ASTRO (OP, TP: RM1.22) for having an attractive dividend yield of 7.6% and moving in line with its aim of becoming an OTT aggregator of 15 SVODs by FY23 and MEDIA (OP, TP: RM0.690) for improved margins thanks to the recent cost optimisation exercises.

Source: Kenanga Research - 20 Oct 2021