Media - More excitements in the 2H

We reiterate our NEUTRAL view on the Media sector. YTD June gross adex grew by +1.6% YoY in contrast to our full year targeted  growth of 11.1% YoY. The weaker-than-expected 1H adex has prompted us to lower our full year adex growth rate to 10.0% YoY after reducing our GDP multiplier assumption to 2.0x (from 2.3x previously). That said, the 2H adex outlook should improve tremendously as opposed to the 1H in view of the pre-Olympic game, the Hari Raya festival and the typical seasonally strong 4Q. Meanwhile, we have also updated our media companies’ advertising rates based on the latest data released. The latest data have prompted us to lower our Star Publications (“STAR”) and Media Prima’s (“MEDIA”) FY12-FY14  earnings estimates by -1.2% to -1.7% and -2.0% to -3.9%, respectively. However, we have raised Media Chinese International’s (“MEDIAC”) FY13 and FY14 net profit forecasts by +9.4% and +13.3% as the latest data showed that we had previously underestimated its numbers. Post-earnings revision, we are keeping our OUTPERFORM rating on MEDIAC with a higher target price of RM1.80 (from RM1.63 previously) based on an unchanged targeted FY13 PER of 15.7x (+2SD). Meanwhile, our STAR and MEDIA target prices have been cut to RM3.22 and RM2.40 (from RM3.28 and RM2.42 previously), respectively, based on unchanged targeted FY13 PERs of 13.0x and 13.4x, respectively. OUR MARKET PERFORM calls on STAR and MEDIA remain unchanged. 

The YTD June gross adex grew by +1.6% YoY or +5.1% MoM (vs. the YTD May number of +0.3% YoY or +7.8% MoM) to RM5.1b  according to Nielsen. The higher YTD growth was mainly driven by all mediums except  for the lower growth in the FTA (-5.3%) and Newspaper (-2.0%) 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%). On market share, newspaper continued to command the lion share but with a lower portion of 40.6% (vs. 41.4% in 1H11) followed by 26.8% (vs. 28.3%) for FTA and 23.8% (vs. 21.6%) for Pay TV. 

MEDIA posted the strongest quarterly gain in the newspaper segment.  All the media companies under our coverage recorded a strong quarterly jump in their newspaper gross adex revenues in 2Q with MEDIA taking the lead at RM345m (+22.3% QoQ; +3.9% YoY) followed by STAR (RM245m; +9.2% QoQ; -8.4% YoY) and MEDIAC (RM210m; +2.1% QoQ; +0.5% YoY). We are not surprised on the jump as adex tends to increase gradually through the year before reaching its highest in the 4Q.  

Astro may relist at a high premium. Recent media reports have suggested that Astro is scheduled to relist in September CY12. The consensus previously forecasted that Astro may record RM526m in net profit in FY13, which would be about double that of its FY10 net profit. Judging from the targeted relisting market capitalisation size of RM15b (vs RM8.5b when Astro was privatised back in 2010), we are of the view that the company could be valued at a forward PER of 30x-35x should the company’s structure remains unchanged. 

Adex sentiment has a moderate correlation against fuel subsidy but muted against electricity tariff changes.  Our recent adex study suggests that the steeper fuel price review in a single year, the more negative the impact will be to the overall adex sentiment. Nevertheless, there is no clear indication suggested that the adex outlook were affected by electricity tariffs reviews by the government.   

Underestimated media companies’ advertising rates (ad rates).  Apart from using Nielsen's data to gauge the media companies’ newspaper advertisement revenues, one can use the traditional method (advertising space x ad  rate x publishing days), which can be gathered from Media Planning Guide to estimate the numbers. We have applied the latter methodology in our media companies’ financial models due to the absent of Nielsen's data subscriptions in the earlier stage. The latest ad rates showed that we had previously underestimated its numbers; especially the newspaper titles that under MEDIAC group. We have updated the ad rates accordingly in our media companies’ financial model. 

Source: Kenanga