Media - All eyes on Astro

We reiterate our NEUTRAL view on the Media sector. The YTD August gross adex grew by 2.1% YoY in contrast to our full year targeted growth of 10.0% YoY. The weaker-than-expected YTD adex was mainly caused by the persisting Europe debts issue and the uncertainty over the upcoming General Elections. These have led advertisers to continue to adopt a ‘saving for the rainy days’ approach and we reckon that they will only turn aggressive when these concerns become lesser. While we believe that the adex sentiment will improve on a MoM basis going forward due to the seasonality factor, we will likely review our full-year adex forecast (with a downside bias) after having a clearer picture on the coming 3QCY12 adex. Based on our study, for every 100bps change in our CY13 adex growth rate of 10%, the earnings of STAR, MEDIAC and MEDIA will be impacted by ±1.4%, ±0.3% and ±1.0%, respectively. The re-emergence of a media giant – Astro may potentially lead the local media sector to return to the investors’ limelight, in our view, should it be included earlier in the FBMKLCI component list during its next index review. MEDIA, being the closest proxy to Astro, could also potentially be a dark-horse as it could benefit from the index rebalancing. Maintained OUTPERFORM rating on MEDIAC with an unchanged target price of RM1.80 based on a targeted FY13 PER of 15.7x (+2SD). Meanwhile, our STAR and MEDIA’s target prices remain unchanged at RM3.22 and RM2.40, based on unchanged targeted FY13 PERs of 13.0x and 13.4x, respectively. Our MARKET PERFORM calls on both stocks are retained.  

2QCY12 result's snapshot.  The sector has generally posted a reasonable 2QCY12 results that came in within ours as well as the street’s estimates. Media companies generally remain cautiously optimistic on the 3Q adex outlook due to the Hari Raya festival and 2012 London Olympics. The 4Q12 outlook, however, remains bleak at this juncture given the uncertainty over the General Elections and the persisting Europe debts' dilemma. We believe advertisers are still adopting a ‘saving for the rainy days’ approach and will only turn aggressive after the GE and when there are fewer concerns on the external risks. 

The  YTD  August  adex  grew  by  2.1%  YoY  but  was  lower  by  3.7%  on  a  month-on month basis  according to Nielsen. The moderate YTD growth was mainly driven by all mediums except for the lower growth in the FTA (-1.4%) and Newspaper (-1.1%) segments. We believe the drop in the YTD FTA adex was mainly caused by the increased adex spending in the Pay TV segment,  which was likely boosted by the upcoming listing of Astro as well as the higher household penetration rate. The total adex, however, fell by 3.7% MoM, due likely to the shorter working days because of the Hari Raya holidays. The drop in the August adex was mainly led by the Pay TV (-8%) and FTA TV (-5%) segments together with a minor slip of 0.8% in the newspaper segment. On market shares, newspaper continued to command the lion share but with a lower quantum of 40.1% (vs. 41.4% a year ago) followed by 27.4% (vs. 28.4%) for FTA and 23.9% (vs. 21.6%) for Pay TV. The adex spending trend in the nontraditional medium (i.e. Magazines, Outdoor, In-store, Internet and Cinema) has continued to increase and accounted for a 4.7% share (vs. 4.5%) of the YTD market adex. This implies that advertisers have continued to focus on more targeted groups and the interactive media.

Re-emergence of a media conglomerate. Astro is scheduled to be relisted on 19 October 2012 with an operation focused on the domestic market only. Astro recorded a total turnover of RM2.1b (+13% YoY) in 1HFY13 but a lower net profit of RM218m (-41% YoY) as a result of higher marketing and distribution costs as well as interest expense. Going forward, we believe the prospect of Astro will mainly rely on its 1) subscriber's growth; 2) HD take-up rate, which is the key factor that will uplift its ARPU going forward and 3) the sustainability of its customer acquisition cost. 

Astro listing – a potential wildcard to the media sector? We believe Astro could potentially be included in the FBMKLCI during the next index review. Should the scenario happen, this may lead the media sector back  to the investors’ limelight and Media Prima, being the closest proxy to Astro, could potentially benefit from the index rebalancing as well.

Source: Kenanga