Malaysia’s  gross  advertising  expenditure  (adex)  fell  7.8%  m-o-m  in August.  Although  YTD  adex  is  still  growing,  which  is  in  line  with  our view,  we  are  turning  cautious  due  to  a  series  of  events  that  may negatively impact  adex  numbers. Media Prima (MPR)  remains  our Top Pick  for  its  solid  business  model  and  strong  balance  sheet.  Maintain OVERWEIGHT on the sector.

- Adex  still  growing  but  softening.    At  first  glance,  it  would  seem  a cause for concern  that adex dropped 7.8% m-o-m in August (ex-pay TV adex was down 8.9% m-o-m),  with most  media posting  negative growth. However,  on  a  cumulative  basis,  total  gross  adex  actually  expanded 17.9% y-o-y. Excluding  pay TV adex, it was  0.5%  higher  y-o-y  vs  -0.7% y-o-y in 8MCY12). 

- Turning  cautious.  Although  adex  growth  is  softening,  it  is  still  in  line with our view that this year’s adex growth should be stronger than that in 2012.  Still,  we  are  turning cautious  owing to: i)  the  depreciation  of  the MYR  against USD,  ii) Bank Negara paring  Malaysia’s overall 2013 GDP forecast  to  4.5-5.0% from 5.0-6.0%,  iii) the  outflow of foreign funds,  and iv)  the  Government’s  plan  to  rationalize  subsidies  may  lead  to consumers  turning  cautious  in  spending.  Moreover,  uncertainties  over the upcoming Budget 2014  due to be unveiled next month  may further drag  down  adex  for  Sept-Oct.  Nonetheless,  we  hope  to  see  a  strong boost in numbers by year-end that will push up adex growth. 

- MPR still our Top Pick.  Media Prima (MPR MK, BUY, FV:  MYR3.60) is still  our  Top  Pick  for  the  sector  as  the  company  maintains  market leadership in its core businesses  even  as  it expands into  new media  to diversify its income. Furthermore, the company’s  healthy  balance sheet should support its future growth needs.

- Risks.  A  prolonged  economic  slowdown,  consumers  unexpectedly holding back  on expenditure and economic  uncertainties may  negatively affect the adex numbers.

- Maintain OVERWEIGHT.  While we  are still  OVERWEIGHT view on  the media sector, we are keeping a lookout for new  developments that may prompt  adjustments  to  our  numbers.  We  maintain  our  BUY recommendations  on MPR, Astro Malaysia (ASTRO MK, FV:  MYR3.36) and  Catcha  Media  (CHM  MK,  FV:  MYR0.96).  Meanwhile,  we  remain NEUTRAL on Media Chinese (MCIL MK, FV: MYR1.06).

Source: RHB