Advertising expenditure (adex) for 1QCY13 grew by a decent 19.2% y-o-y, an indication that market sentiment is improving. Advertisers are switching from print to TV, benefiting Media Prima and Astro. Chinese newspapers’ share of the adex continued to grow, while that for English newspapers declined. We think that the media sector is poised for a recovery, and hence upgrade it to OVERWEIGHT.

-  Market sentiment improves. Based on the adex numbers for 1QCY13 (+19.2%y-o-y), we think that the market sentiment on the sector may have begun to improve. The TV segment gained adex share at the expense of print media, while Chinese newspapers outshined its peers. The switch in advertisers’ preferences from print to TV would benefit Media Prima and Astro. Meanwhile, Media Chinese International (MCIL)’s share of the adex could still grow decently, backed by strong support from its target audience.

-  Advertisers getting pickier. We think that advertisers are becoming pickier and want to ensure that they are targeting the right audience. As Media Prima and Astro facilitate this through categorizing their audiences by ethnic group or age, this may be a reason why advertisers are switching to the TV segment.

-  Newsprint costs may rise. A source told us that the price of newsprint may rise earlier than anticipated due to the narrowing gap between its supply and demand. Hence, newsprint manufacturers now may have higher bargaining power. Nevertheless, we think the impact of more expensive newsprint should not be too severe as companies have enough in their inventories to weather such a situation.

-  Upgrade to OVERWEIGHT. As we think that the market sentiment is improving and the media sector is poised for a recovery, we upgrade the sector to OVERWEIGHT, and upgrade Media Prima (FV: MYR2.80) to BUY and Media Chinese (FV: MYR1.31) to TRADING BUY. Our BUY recommendations are maintained for Astro (FV: MYR3.36) Catcha Media (FV: MYR0.65).

Source: RHB