1QCY22 total gross adex compiled by Nielsen shows a 14% improvement YoY, however, a 13% decline QoQ (as shown in Figure 5), presumably due to lack of advertisement campaigns. Moving forward, as the nation transitions into the endemic stage in 2QCY22, we expect adex to continue its upward trajectory as precedents have shown that the reopening of the economy normally bumps up adex. Media players like MEDIA and ASTRO would most likely benefit as MEDIA’s Omnia segment provides a convenient advertising platform across all media platforms whereas ASTRO’s newly launched Addressable Advertising solutions allows advertisers to specifically target their audience. All in, we maintain ASTRO (OP, TP: RM1.29) and MEDIA (OP, TP: RM0.740) as our top picks. We like ASTRO for its attractive dividend yield of 8.5%, and taking progressive steps in fulfilling its ambition to be the country’s top OTT aggregator, and an ISP as well. As for MEDIA, it is due to improved margins and robust Omnia segment.

Digital adex rising steadily. Based on the data gathered by Nielsen, 1QFY22 adex rose by 14% from RM1.3b in 1QFY21 to RM1.5b thanks to the reopening of more business activities in 2022 compared to 2021 where lockdowns were enforced throughout the year. Excluding digital adex, YoY total adex would have only risen by 11%. Moreover, FTA-TV adex increased by 12% due to the abovementioned reason and still remains as the largest contributor to total adex. Cinema adex shot up by >+100% to RM36.1m whereas radio (+36%) and magazines (17%) saw a decent increase in adex. On the other hand, newspapers continued its downward trajectory, declining by 6% and falling by 3ppt YoY in terms of its share of total adex. The market share decline in newspapers was offset by the rise in digital share (1QCY22: 20% vs. 1QCY21:18%).

QoQ decline, as expected. Total gross adex declined by 13% from RM1.8b in 4QCY21 to RM1.5b in 1QCY22 which was mainly dragged down by FTA-TV (-12%). This decline was expected as 1Q is seasonally a weak quarter presumably due to advertisers having yet to set out their advertisement campaigns for the year. Digital adex dropped by 7%, radex by 13% and newspapers by 26%, however, cinema was the only media platform to witness an increase in adex (+53%). It is noted that newspapers dropped more than digital adex in 1Q indicating advertisers’ preference for digital advertisements over print.

Transitioning into the endemic phase. Effective 2QCY22, Malaysia began transitioning into the endemic phase which allows businesses to return to normalcy and international borders to reopen. Basing on the sharp adex rebound shown in 4QCY21, thanks to the relaxation of SOPs and lockdowns in the said quarter, we expect the endemic phase to result in more advertisements being generated as advertisers increase their marketing budget in anticipation of better sales turnover due to the reopening of the economy. We reckon this will greatly benefit media players such as (i) MEDIA due to the group’s integrated marketing approach which makes it convenient for businesses to advertise on multiple platforms via a single channel, and (ii) Astro as the group's newly launched Addressable Advertising solutions should garner good take-up rate which will see an improvement in the TV adex segment that is currently on a downtrend.

Sector call is maintained at OVERWEIGHT. We expect a better adex outlook in 2CY22 as businesses return to operating at optimal levels coupled with the strong domestic demand which would encourage more advertising activities. All in, we continue to like ASTRO (OP, TP: RM1.29) for its attractive dividend yield of 8.5% and staying on track of becoming an OTT aggregator of 15 SVODs and ISP by FY23, and MEDIA (OP, TP: RM0.740) for its fully-integrated media platforms and improved margins thanks to the recent cost optimisation exercise.

Source: Kenanga Research - 20 Apr 2022