The earnings delivery (versus our expectations) of media companies under our coverage deteriorated sequentially in 3QCY24, with 50%, 0%, and 50% exceeding, meeting and missing our projections, respectively. There was a broad-based decline in actual adex receipts of 6%−15% YoY in 9MCY24, likely attributed to the lingering impact of Gaza consumer boycotts, heated competition and inflationary pressures impacting consumer sentiment. We maintain our CY24 adex growth assumption of 1.6% YoY (CY23: +1.8% YoY), that is mainly driven by FTA TV. Its growth is expected to more than offset the dip in digital adex, which we believe is dragged by heated competition with social media and key opinion leaders (KOL). However , we believe FTA TV may struggle to capitalize on increased adex as intense competition leads to rate discounts as reflected in weaker revenues. We maintain UNDERWEIGHT with no stock picks for the sector, having lowered MEDIA to MARKET PERFORM.

Bright spots were earnings boost from new property sales and travel offerings. The earnings delivery (versus our expectations) of media companies under our coverage deteriorated sequentially in 3QCY24, with 50%, 0%, and 50% exceeding, meeting and missing our projections, compared with 75%, 0%, and 25% respectively, three months ago (Exhibit 1).

Companies that disappointed include ASTRO (UP; TP: RM0.20) and MEDIA (MP; TP: RM0.46) as costs remained stubbornly escalated, while top line was weighed by weaker adex and subscriber rout (for ASTRO). Conversely, media players that outperformed are STAR (MP; TP: RM0.45), propelled by increased unit sales and steady progress billings from its property development project, and MEDIAC (UP; TP: RM0.11), boosted by new offerings for its premium CEO-led luxury tour coupled with lower costs (for newsprint and depreciation).

QoQ Reversal in ASTRO's subscriber rout. ASTRO's TV customer base expanded by 1.5% QoQ in 3QFY25 after 16 consecutive quarters of subscriber churn since 3QFY21. This may be attributed to favourable market response to its revamped TV packs, namely Astro One (Entertainment, Sports and Epic) with monthly subscription plans ranging from RM50 to RM200.

On a more pessimistic note, sequential ARPU dropped to RM99.20 (2QFY25: RM99.80) in 3QFY25, possibly due to increased subscribers signing up for lower-tier Astro One plans.

Adex decline across the board. In 9MCY24, there was a broad-based decline in actual adex receipts at: (i) ASTRO (10MCY24: -16% YoY), (ii) MEDIA (-4% YoY), and (iii) MEDIAC (-6% YoY). In the case of STAR, while it does not disclose its adex receipts, Nielson data indicated a 4% YoY decline in 9MCY24 adex for STAR's daily newspaper publication. We believe the weakness was partly driven by the lingering impact of consumer boycotts targeting major international brands associated with the Gaza conflict. This is compounded by heated competition and subdued consumer sentiment, as inflationary pressures continue to weigh on spending habits.

Crowded competition for adex. Traditional media players in Malaysia face intense competition from KOLs, digital media (e.g. streaming websites and apps) and social media. This shift is largely driven by structural changes in consumer behaviour and the evolving marketing landscape. Consumers are increasingly drawn to short-form videos, live-stream merchandise sales, KOL product endorsements, and online shopping. Advertisers and brands are also favouring digital media due to several advantages: (i) lower cost-per-impression rates, (ii) more effective AI-driven ad personalization and targeting, (iii) interactive features that enable two-way communication between consumers and brands, and (iv) the ability to direct traffic to online stores.

As a result, brands and retailers are increasing digital marketing spend and collaborating with KOLs through direct sponsorships and partnerships to generate market buzz.

Expect muted adex growth in CY24. We maintain our CY24 adex growth assumption of 1.6% YoY (CY23: +1.8% YoY, 9MCY24: +0.3%), that is mainly driven by FTA TV (+10% YoY) on sustained traction in the popularity of its programming. Its growth is expected to more than offset the dip in digital adex, which we believe is dragged by heated competition with social media and KOLs. While Nielsen reported 10.3% YTD growth in FTA TV adex, it does not align with MEDIA's actual 9MCY24 adex contraction of 4% YTD. We believe this discrepancy was attributed to MEDIA's integrated campaign solutions, which encompass both above- and below-the-line advertising for its clients. Furthermore, Nielsen's data likely reflects board rates without accounting for potential discounts. Amid heightened competition, it is plausible that MEDIA faces pressure to discount its rates to drive sales.

Looking ahead, we expect print publishers to gain to some extent from a stronger MYR against the USD, which would help lower expenses for both newsprint and licensed content. Conversely, for ASTRO, the majority of its USD-denominated costs are typically hedged 12 months in advance. As a result, the benefits of a stronger MYR against the USD will only materialize after a one-year lag.

Year-end may bring some cheer. As we head into 4QCY24, we anticipate a sequential uptick in 4QCY24, as consumers are likely to engage in higher spending due to the upcoming holiday season during the year-end school break, Christmas, and New Year's celebrations. This period presents a prime opportunity for advertisers to ramp up their marketing spend to capture the festive demand, especially after holding back during the earlier part of the year. Additionally, we anticipate a boost to adex driven by the gradual recovery from easing consumer boycotts related to Gaza.

Bleak earnings visibility. We maintain our UNDERWEIGHT stance as traditional media players are burdened by both revenue headwinds and legacy costs, (e.g. large corporate headquarters, costly printing facilities, oversized workforce). Evidently, smaller media players are struggling to achieve profitability, while segments within larger firms continue to alternate between quarterly profits and losses. We do not have any stock picks within the sector.

Source: Kenanga Research - 13 Dec 2024