Malaysia’s gross advertising  expenditure  (adex)  expanded  7.1%  m-o-m in  September  (3QCY13:  +5.9%  q-o-q;  9MCY13:  +19.8%  y-o-y).  Adex growth is on track with our expectations, but the uncertainties arising in the  global  economy  and  Malaysia’s  2014  Budget  may  impact advertisers’ spending. We keep our OVERWEIGHT recommendation for the sector, with MPR as our Top Pick.

- Back  on  track.  September’s overall gross adex showed  a  healthier growth of 7.1% m-o-m (ex-pay TV: +5.9% m-o-m) and grew by 5.9% q-o-q (ex-pay TV: +5.5% q-o-q) in 3QCY13. YTD, 9MCY13’s total adex went up 19.8% y-o-y (ex-pay TV: +2.3% y-o-y). This has somewhat eased our concerns of the last two months that adex numbers were showing slower growth.  Although  Free-To-Air  TV  (FTA  TV)  has  shown  a  1.6%  q-o-q decline vis-à-vis Pay TV’s growth of 6.5% q-o-q, in September the former recorded the strongest growth among all mediums, charting 12.1% m-o-m growth. This was  mainly driven by Media Prima (MPR MK, BUY, FV: MYR3.60)’s channels.  Meanwhile,  newspaper adex  grew  11.6x%  q-o-q, mainly  boosted by  the  English  language papers  (+19%  q-o-q)  on  top  of the steady growth by their Chinese language peers (+1% q-o-q).

- Moving into the strongest quarter. We believe that the media industry is  moving  into  the  strongest  quarter  of  the  year  for  adex,  4Q.  This  is when  advertisers  need  to  exhaust  their  advertising  budget.  Couple  this with the year-end sales and the festive season, and you have a scenario that that may help boost advertising spending. We also believe that the impending  2014  Budget  speech  is  factor.  The  market  is  expecting  the mechanics  and  implementation  of  the  goods  and  services  tax  (GST)  to be  announced  in  the  Budget  speech  and  we  believe  that  the uncertainties  over  this  tax  could  have  held  back  some  adex.  We  think that advertisers may start spending again once the uncertainty is over.

- Risks. We believe that the market uncertainties, such as the pace of the global  economy’s  recovery  and  the  Malaysian  Government’s impending 2014 Budget speech, may be a drag on consumer spending behaviour. Our  forecast  on  adex  growth  can  also  be  impacted  by  negative developments  affecting  the  market,  which  can  result  in  advertising spending growth not being as positive as anticipated.

- Maintain  OVERWEIGHT.  MPR  remains  as  our  Top  Pick  while  we believe  Astro  (ASTRO  MK,  BUY,  FV:  MYR3.36)  is  a  longer-term investment.  Catcha  Media  (CHM  MK,  BUY,  FV:  MYR0.96)  has  just completed its merger with Says.com and we think its outlook has turned brighter. We are keeping our NEUTRAL stance for Media Chinese (MCIL MK,  FV:  MYR1.06).  All  in,  we  maintain  our  OVERWEIGHT recommendation for this sector.

Source: RHB