We maintain our UNDERWEIGHT recommendation on the sector, given persistent topline pressure amidst fierce competition with key opinion leaders (KOL), digital platforms, social media, unauthorized TV boxes, and over-the-top (OTT) platforms. Additionally, on the cost front, traditional media players are weighed down by legacy expenses (e.g. newsprint, ink, broadcasting towers, and bloated workforce). Our muted CY24F adex growth estimate of 1.6% YoY is mainly driven by free-to-air TV (FTA TV), which more than compensates for the decline in digital adex. We do not have any stock picks within the sector.

Fierce competition in adex. Traditional media in Malaysia are facing mounting competition from KOLs, digital platforms (e.g. streaming websites & apps) and social media. This is due to more compelling features offered by digital mediums, including: (i) real-time updates and breaking news assessable via smartphones, (ii) enhanced audience engagement via two-way interactions (e.g. comments, likes, shares, & direct messaging), and (iii) curated content tailored to specific interests. Hence, audiences are gravitating towards formats such as short-form videos, live-streamed merchandise sales, KOL product endorsements, and online shopping.

Moreover, advertisers and brands also prefer digital media due to advantages such as: (i) cost-efficient impression rates, (ii) effective consumer targeting via AI-powered ads that leverage digital analytics, and (iii) direct engagement and feedback from consumers. Consequently, brands and retailers are increasing their digital marketing spend and collaborating with KOLs through direct sponsorships to amplify market visibility and create buzz.

Pay TV struggles to stem decline in subscription revenues. ASTRO's subscriber churn finally turned around in the recent quarter, with a 1.5% QoQ expansion in its customer base after 16 consecutive quarters of contraction since 3QFY21. This improvement was likely driven by the introduction of Astro One TV packs (Entertainment, Sports and Epic), with monthly subscription options ranging from RM50 to RM200. However, the sequential decline in ARPU to RM99.2 indicates that a substantial share of new subscribers likely favoured the lower-tier plans. As a result, the recent subscriber growth does little to mitigate concerns about the persistent decline in ASTRO's subscription revenues.

Meanwhile, we believe cord-cutting trends will likely continue in the near to medium term, driven by:

1. Growing adoption of unauthorized TV boxes, which are a significantly cheaper alternative, 2. Rising dominance of OTT platforms (e.g. Netflix and Disney+), that are renowned for their exclusive original content.
2. Rising cost of living, prompting consumers to seek more affordable entertainment options.
3. Netflix's strategic expansion of its vernacular content library, focusing on Asian languages such as Malay, Tamil, Mandarin and Korean.
4. Rampant online piracy of movies and TV series that offers free access to movies and TV programs.
5. Shift in younger demographics towards digital platforms (e.g. social media, mobile apps, and video streaming), due to their preference for short-form content.

Muted adex growth due to diluted marketing spend. We retain our CY24 adex growth assumption of 1.6% YoY (CY23: +1.8% YoY, 9MCY24: +0.3%), primarily driven by FTA TV adex (+10% YoY), as we believe its vernacular programming remains popular. Its anticipated growth is expected to offset the decline in digital adex, which continues to face intense competition from social media platforms and KOLs. While Nielsen reported a 10.3% YTD increase in FTA TV adex, this contrasts with MEDIA's reported 9MCY24 adex decline of 4% YTD. We attribute this discrepancy to MEDIA's integrated campaign solutions, which combine both above and below-the-line advertising services for clients.

Additionally, Nielsen's figures likely reflect board rates without factoring in potential discounts. As competition remains heated, it is plausible that MEDIA is under pressure to offer discounts to secure ad sales.

We remain UNDERWEIGHT on the sector given persistent topline pressure amidst fierce competition. Additionally, on the cost front, traditional media players are weighed down by legacy expenses for: (i) newsprint, ink and logistics for newspaper delivery, (ii) broadcasting infrastructure such as towers and satellite uplinks, and (iii) a large and aging workforce with skillsets rooted in the pre-digital era, leading to inefficiencies. These structural burdens, particularly when compared to new media, render it challenging for smaller traditional media companies to achieve profitability.

Meanwhile, larger firms face earnings volatility, with certain segments oscillating between quarterly profits and losses.

We do not have any stock picks within the sector.

Source: Kenanga Research - 15 Jan 2025