Malaysia’s 9M15 total gross adex contracted 2.6% YoY, led down by a weaker 3Q15. FTA TV (-16.0% YoY) and newspaper (-15.6% YoY) contracted while pay-TV (+1.3% YoY) outperformed. Nonetheless, we note that media players are diversifying their revenue streams while managing cost. We expect sector earnings to rebound from the lower base of 2014, albeit marginally, and remain NEUTRAL on the sector.

Weaker 3Q15 gross adex. Total gross adex (advertising expenditure) declined 8.0%YoY, as we opine that the GST, weaker MYR as well as macro-economic uncertainty led to an overall weaker consumer sentiment and consequently, adex. Free-to-air (FTA) TV (-16.0% YoY)and newspapers (-15.6% YoY) recorded the largest contraction while pay-TV (+1.3% YoY) managed to sustain their growth momentum. As a proportion of total adex market share, pay-TV soared to 41.3% (+3.8 ppts) at the expense of newspapers at 30.9% (-2.8 ppts) and FTA TV at 21.1% (-2.0 ppts). There were also notable growth in the cinema (+57.3% YoY) and in-store (15.8% YoY) adex, albeit from a small base.

Pay-TV continues to outperform. 3Q15 TV adex contracted 5.3% YoY, with pay-TV the only notable growth medium, which bodes well for Astro Malaysia (ASTRO MK, NEUTRAL, TP: MYR3.07) who dominates the pay-TV market. FTA TV contracted 16.0% YoY while pay-TV grew 1.3% YoY. The divergence of performance is symptomatic of a structural shift of adex as advertisers prefer the pay-TV platform which allows greater customer segmentation due to a larger variety of channels. Media Prima(MPR MK, NEUTRAL, TP: MYR1.21), which retained its 88% market share of FTA TV adex, posted contraction in all four of their TV channels to record an overall 12.1% YoY fall in adex. In particular, NTV7 recorded a 24.4% YoY contraction in adex.

Newspaper adex continues to underperform. 3Q15 newspaper adex contracted 15.6% YoY, underperforming the broader adex market which contracted 8.0% YoY (see Figure 3). The English and Malay vernacularswere the worst performer as adex contracted 18.9% and 15.9% respectively. Media Prima underperformed the newspaper medium by posting a 19.0% adex contraction in their newsprint segment. In particular, News Straits Times and Berita Harian contracted 28.9% and 28.5% respectively. Combined with TV segment, we expect Media Prima to post a QoQ as well as a YoY contraction in adex revenue.

Maintain NEUTRAL on media sector. Malaysian 9M15 total gross adex contracted 2.6% YoY. We believe that the weaker consumer sentiment led by GST, weaker MYR as well as macro -economic headwinds would continue to weigh on the broader adex market and as such, we remain cautious on 2015 adex revenue prospects for the sector. Nonetheless, media players under our coverage have shown positive progress on cost saving measures (Media Prima recorded a flat 1H15 earnings despite a 6.4% fall in revenue) as well as revenue diversification (Astro home shopping) efforts to sustain earnings. As such, we remain NEUTRAL on the media sector.