Media - NEUTRAL - 28 June 2012

We maintain our NEUTRAL view on the media sector. The improvement in the YTD adex momentum is within the industry players and our expectations given that adex tend to gradually increase through the year before reaching its highest in the 4Q. The entrance of a new digital cable operator, Asian Broadcasting Network (ABN), has heated up the competition in the Pay-TV  segment that used to be dominated by Astro. Meanwhile, Astro is targeting to re-list in September and is eyeing a market capitalisation of up to RM15b, according to recent press reports. The IPO plan, if materialises, will likely see the  company becoming an index component member in the future judging from its sizeable market capitalisation. We are maintaining Media Chinese International (“MEDIAC”) target price of RM1.33 with an OUTPERFORM call while keeping MARKET PERFORM ratings on both Star Publications (“STAR”) and Media Prima (“MEDIA”) with unchanged target prices of RM3.28 and RM2.40, respectively. 

1QCY12 results snapshot.  The media sector has generally posted a lower than expected 1QCY12 result, no thanks to the weakened Adex revenue coupled with the higher operating costs during the quarter. MEDIAC was an exception as it recorded a strong quarterly result on a year-on-year basis, mainly driven by a moderate revenue growth and more stringent cost controls. Despite softer 1Q12 results, media companies continue to remain cautiously optimistic on the CY12 adex outlook, which will be underpinned by few major sport events and a potential General Election.  

The YTD May gross adex grew by +0.3% YoY or +7.8% MoM (vs. YTD April of -0.7% YoY or +4.4% MoM) to RM4.1b  according to Nielsen. The higher growth was mainly driven by all mediums but partially offset by the lower growth in the FTA (-7.9%), Internet (-2.4%) and Newspaper (-1.3%) segments. We believe the drop in the FTA adex was mainly caused by the increased adex spending in the Pay TV segment as a result of a higher household penetration rate (1Q12: 46.4% vs. 4Q11: 45.5%). The improved adex sentiment was within ours and the industry’s expectations with the 1Q adex typically being the lowest of the year and gradually increasing before reaching its peak in the 4Q. On the market share, newspapers continued to command the lion share with a 41.3% share of the YTD May total adex followed by 26.0% for FTA TV and 23.5% for Pay TV. The adex spending trend in the non-traditional medium (i.e. Magazines, Outdoor, In-store, Internet and Cinema) has continued to increase and accounted for 5.1% (vs. 4.6%) of the YTD market share. This implied that advertisers now tend to focus on more targeted groups and interactive media.

Competition intensifying in the Pay TV segment.  The entrance of a new digital cable operator, Asian Broadcasting Network (ABN), has heated up the competition in the Pay-TV segment that used to be dominated by Astro. We understand that ABN has inked an agreement with Fibercomm (51% owned by Telekom Malaysia and 49% by Tenaga Nastional) for backhaul access with Motorola Mobility Inc as its main technology partner to support other services (i.e. Video-on-demand, social TV, interactive game, high speed internet and voice services). ABN, which has its headquarters in Puchong, Selangor, is aiming to achieve a subscriber base of 0.5m by end-CY12 and to roll out more than 100 channels in Klang Valley, Johor and Penang by June. It was earlier reported that ABN is looking at providing a basic package, which is priced 25%-35% cheaper than its peers of between 40-50 channels upon launching. Currently, the cheapest start-up Pay TV package in the market is RM37.95 for 38 basic channels offered by Astro.  

Astro, the country’s leading Pay-TV, may re-list in September and is eyeing to achieve a market capitalisation of up to RM15b  according to recent press reports. The IPO, if materialises, will be the third largest in  the local market and Astro may potentially become an index component member in the future judging from its sizeable market capitalisation. To recap, Astro was privatised for  RM8.5b cash (at an offer price of RM4.30/share) in 2010. Post-privatisation, Usaha Tegas and its affiliates control 58% equity stakes in Astro with the remaining 30% and 12% controlled by a Khazanah subsidiary and Bumiputra Foundations, respectively. 

Source: Kenanga