Media - YTD adex growth remains moderate

We are maintaining our NEUTRAL view on the media sector. July gross adex grew by 2.2% MoM, bringing the YTD adex growth to +2.4%  YoY. We believe the moderate performance in the YTD adex was mainly caused by a ‘saving for the rainy days’ approach adopted by advertisers. On top of that, the uncertainty of the 13^th  General Election could also muffle advertisers' appetite to a certain extent. While we are retaining our 10.0% (based on a 2.0x GDP multiplier) fullyear adex forecast for now, we may review the number should August adex come in below our expectation. There are also no changes in our media companies’ CY12-CY14 earnings estimates. We are keeping our OUTPERFORM rating on Media Chinese International (“MEDIAC”) with an unchanged target price of RM1.80, based on a targeted FY13 PER of 15.7x (+2SD). Meanwhile, our Star Publications (“STAR”) and Media Prima (“MEDIA”) target prices remain at RM3.22 and RM2.40, based on unchanged targeted FY13 PERs of 13.1x and 13.4x, respectively. We reiterate our MARKET PERFORM calls on STAR and MEDIA. 

The YTD July gross adex grew by +2.4% YoY to RM6.1b according to Nielsen. The higher growth was mainly driven by all mediums but was partially offset by the lower growth in the FTA (-1.9%) and Newspaper (-0.5%) segments.  Outdoor and Cinema segments, on the other hand, recorded the strongest YTD jump of +24.1% and +56.7% to RM82.5m and RM18.1m, respectively, as a result of increasing adex spending trend on targeted groups and changes in consumer lifestyles. On the market share front, Pay TV segment continued to gain market share in the YTD July total gross adex with  23.9% (vs. 21.7% a year ago) at the expense of the FTA (27.2% vs. 28.4%) and newspapers (40.2% vs. 41.4%) segments. 

MoM, July adex was up by 2.2% to RM1.0b  thanks to the higher contribution from the Newspapers (+4.7%) and Pay TV (+2.6%) segments but this was partially offset by flattish growth in the FTA (-0.1%) medium. The latest gross adex numbers have somehow surprised us given that UEFA EURO 2012 and the pre-Olympic game were both scheduled in July and traditionally, they benefit the TV segment more than that of the newspaper medium.  

Newspaper YTD gross adex was relatively flattish at -0.5% YoY to RM2.5b. The relatively flattish performance was mainly caused by the contraction in both the English (-7.0% YoY) and Chinese (-1.3% YoY) segments but was  partially offset by a higher contribution from the Malay (+5.9% YoY) segment. On a MoM basis, most of the languages newspapers improved in July with Malay experiencing the largest expansion of 17.3% followed by Chinese (+0.4%). English newspapers adex, meanwhile, contracted by -2.7%. MEDIAC, STAR and MEDIA’s newspaper gross adex recorded a -2.2%, -11.2% and +12.9% growth, respectively, in July on a YoY basis. 

YTD Pay TV gross adex continued to strengthen by 12.8% YoY to RM1.47b at the expense of FTA TV, which contracted by 1.9% YoY. On a MoM basis, the total TV adex experienced a moderate growth of 1.2% driven mainly by the UEFA EURO event. For the TV segmental adex breakdown, MEDIA’s gross TV adex was lowered by 3.8% MoM as opposed to the other FTA TV (-0.1%) and Pay TV (+2.6%) segments. On market shares front, FTA TV continued to command the lion share of the total YTD TV adex with a 53.2% share (vs. YTD July 11: 56.6%).    

Sentiment continued to improve but may come in below expectation on a full-year basis. While the gross adex momentum has continued to improve, it may still likely be below our expectation on a full-year basis, which we have forecasted to record an adex growth of 10.0% in CY12, based on a 2.0x GDP multiplier. We are retaining our adex forecast for now but may review our numbers should August adex come in below our expectation. Note that August adex should theoretically record a strong growth due to the Olympic game and Hari Raya festival.

Source: Kenanga