CY22 adex grew 8.8%, below our expectation as an unexpected drop in digital adex resulted in growth moderating substantially. The major non-digital segments broadly met our expectations, excluding FTA TV which remained flat YoY. Radio and newspaper adex both met our forecasts, growing 23% and 14.6%, respectively. However, digital adex growth normalised significantly to 25.5% YoY following an 11.1% drop QoQ in 4Q. We believe this is partially due to the redeployment of funds towards in-person media following the reopening of the economy. Looking to CY23, our adex outlook remains muted given recessionary fears and an expected slowdown in the global economy. We reiterate NEUTRAL on the sector.

Non-digital broadly within expectations. YoY, total adex grew 8.8%, below our expectation of 11.8% for the full-year. Regarding the major non-digital channels, free-to-air (FTA) TV remained flat YoY, contracting marginally by 0.4% and missing our estimate of 1% growth YoY. The negative deviation came largely from an overestimation of 4QCY22’s seasonal uptick due to major sporting events. The segment actually contracted 0.8% compared to same period last year as optimism from the reopening of the economy was replaced by inflationary pressure and recession concerns. On a more positive note, both radio and newspaper adex met our forecasts. Radio grew 23%, slightly above our forecast of 20%. The segment saw a major rebound in CY22 following the lifting of travel restrictions and benefited greatly from the return of drivers. Newspaper adex benefited similarly, growing 14.6% vs. our forecast of 10%. Based on the most recent round of results, printing of newspapers remained relatively flat YoY. However, advertisers seemed to be willing to pay higher rates following the increased foot traffic in public areas again. Overall, non-digital adex met our expectations, growing 5.3% vs. our forecast of 4.9%.

An unexpected drop in digital. Digital adex growth moderated significantly following an unexpected QoQ drop in 4Q, the first observed during 4Q since Nielsen began recording digital adex in 2019. The segment missed our expectations, growing 25.5% YoY vs. our forecast of 45%. Digital adex fell 7.7% in 4Q compared to the same period last year, again for the first time since Nielsen began recording it. Interestingly, the drop was nearly entirely concentrated within YouTube adex which fell 15% QoQ and 14% compared to 4QCY21. We believe this is due to the increased effectiveness of traditional platforms post-reopening as well as the impact of MYR weakness on YouTube advertising. The lifting of pandemic restrictions buoyed traditional platforms with the increase in foot traffic and advertisers could be partially shifting their focus away from digital media to capitalise on the development. CY22 also saw the resurgence of cinema, with the segment more than tripling YoY which may have drawn adex away from digital media as well. Additionally, we believe that MYR weakness could have resulted in increased rates for YouTube advertisements during 4QCY22, resulting in advertisers redeploying their funds elsewhere for better value for money.

QoQ. Total adex grew 8.8%, driven mainly by the seasonal factor as adex improved across most channels. FTA TV grew 13.6%, broadly in-line with previous seasonal jumps seen during the holiday period. Radio benefited similarly from holiday advertising campaigns, growing 31.2% QoQ. Otherwise, newspaper remained relatively flat, growing 0.6% QoQ and overall, non-digital adex grew 13.9%. Digital was the only platform to record a QoQ drop, contracting 11.1% due to the fall in YouTube adex. As a result, QoQ adex growth moderated after including digital adex.

4QCY22 market share. Digital recorded the largest drop in market share, losing 3ppts and falling to 18% of overall adex due to the lower YouTube ad spend. FTA TV claimed some of that market share, gaining 2ppts. The segment remained the largest segment, commanding 55% of overall adex. Radio also gained 2ppts following the drop in digital adex, growing to 8% of overall market share. Newspaper market share fell marginally, dropping 1ppt to 16% during 4QCY22.

Post review. We maintain our segmental growth estimates for CY23, projecting relatively flat traditional media adex and a digital adex growth of 10%. However, we fine-tune down our full-year adex growth to 2.8% (from 3% previously) after rebasing our calculations on CY22 full-year numbers. We also maintain our forecast for the digital players under our coverage given the drop in adex was largely isolated within YouTube and not the local websites.

CY23 outlook. We continue to expect CY23 to be muted in terms of adex given a softer global economic outlook and the lack of major events (i.e. Olympics, World Cup). On a brighter note, costs are expected to come off as global supply chains recover and the resumption of tourist activity from China could boost consumer sentiment and encourage increased advertising activity. However, we remain cautious given recessionary fears and concurrent interest rate hikes which may affect consumer spending and dampen advertiser optimism.

We maintain NEUTRAL on the sector. We continue to like MEDIA (OP; TP: RM0.51) given: its: (i) integrated approach to advertising which we believe offers better demographic targeting and scalability, (ii) strong cost optimisation following the consolidation of its advertising divisions into Omnia, and (iii) leading position in the FTA TV space in which it commands the largest market share. However, we remain wary as the group continues to struggle to address its loss-making segments.

Source: Kenanga Research - 19 Jan 2023