2QCY22 adex rose 4.7% YoY. A 55% jump in digital adex spending, was partially offset by a 4.0% contraction in non-digital adex spending. Having realised the effectiveness of digital advertising (in terms of a greater market reach and better demographic group targeting) during the pandemic, we believe advertisers will continue to shift from the traditional media to digital media. We expect the adex recovery to sustain into 2H 2022 as the economy comes out the other end of the pandemic. However, we are mindful of the risk of advertisers cutting back on advertising spending in anticipation of slowing consumer spending as sustained elevated inflation eats into the disposable income of consumers. We continue to like MEDIA (OP, TP: RM0.740) for its Omnia platform that is highly popular with advertisers given its ability to offer integrated advertising solutions.

Digital sustains growth. According to Nielsen data, the overall adex grew 4.7% from RM1.4b to RM1.5b as we moved from the pandemic to the endemic phase. Digital channels, now being the second largest media segment, continued its resilient growth, with adex spending increasing 55% YoY. Interestingly, digital media drove the growth in the sector while ex-digital adex actually fell 4.0%. This came as FTA TV, the largest channel in the sector, continued to contract as advertisers shifted their interest away from the traditional channel. ASTRO (MP, TP: RM1.00), our primary TV player, reported flat-to contracting viewership numbers. Overall, the FTA TV segment saw a decrease in adex of 8.5% YoY. Cinemas continued to show massive recovery as adex increased >100% to RM23.1m and radio also showed some improvement at 7.5% growth. Newspaper adex seemed to have stagnated with a flat topline. The continued growth of digital channels resulted in them commanding a 21.9% market share; up from 14.8% in 2QCY21.

QoQ, total gross adex fell 3.6%with contractions reported across multiple channels. FTA TV saw the largest fall in terms of ringgit value as adex fell 6.9% from RM862.4m to RM802.7m. Cinema adex fell 36% as the initial rush of cinema patrons tapered off. Digital and magazines were the only channels that displayed meaningful growth at 6.6% and 22.0%, respectively. Overall, the decrease in adex was within expectations. 1QCY22 numbers exceeded pre-pandemic numbers as advertisers showed a renewed interest in spending following the lifting of movement restrictions.

Outlook. The media sector has not been significantly buoyed by the transition to the endemic phase. The recovery in adex numbers have been restricted to the digital segment. Having realised the effectiveness of digital advertising (in terms of a greater market reach and better demographic group targeting) during the pandemic, we believe advertisers will continue to move away from the traditional media. We expect a seasonally stronger 2H backed by: (1) major sporting events such as the World Cup (which will draw advertisers to television advertising); and (2) the year-end holiday season advertising campaigns. However, we are mindful of the increased content costs (especially for the sporting event) as well as a cutback in advertising on luxury goods as the market responds to downtrading by consumers amidst high inflation.

NEUTRAL maintained for the sector. We expect the adex recovery to sustain into 2H 2022 as the economy comes out the other end of the pandemic. However, we are mindful of the risk of advertisers cutting back on advertising spending in anticipation of slowing consumer spending as sustained elevated inflation eats into the disposable income of consumers. We continue to like MEDIA (OP, TP: RM0.740) for its Omnia platform that is highly popular with advertisers given its ability to offer integrated advertising solutions.

Source: Kenanga Research - 19 Jul 2022