Media - Adex growth remains challenging

We reiterate our NEUTRAL view on the Media sector.  The YTD September gross adex grew by 2.9% YoY in contrast to our full-year  targeted growth of 10.0% YoY. The weaker-than-expected 9-month adex has prompted us to lower our fullyear adex growth rate estimate to 7.5% YoY by revising down our GDP multiplier assumption to 1.5x (from 2.0x previously). Similarly, our CY13 and CY14 adex growth rates have also been lowered to 8.0% and 9.0%, respectively, from 10% each previously. Meanwhile, we have also reduced our CY12-CY14 average newsprint price forecasts to USD680/MT from USD700/MT previously after several months of continued price weaknesses. Our new assumptions above have led us to lower our Star Publications (“STAR”) and  Media Prima’s (“MEDIA”) FY12-FY14 earnings estimates by -0.8% to -3.2% and  -1.0% to -4.6%, respectively. Meanwhile, our Media Chinese International’s (“MEDIAC”) FY13-FY15 net profit forecasts have been lowered by -1.9% to -3.9%. Post-earnings revision, we are still keeping our OUTPERFORM rating on MEDIAC but with a lower target price of RM1.77 (from RM1.80 previously) based on an unchanged targeted FY13 PER of 15.7x (+2SD). Note that our MEDIAC target price will be adjusted to RM1.36 after the group’s M0.41 special dividend goes ex on 6 November. Meanwhile, our STAR and MEDIA target prices have been cut to RM3.15 and RM2.34 (from RM3.22 and RM2.40 previously), respectively, based on unchanged targeted FY13 PERs of 13.0x and 13.4x respectively. Our MARKET PERFORM calls on STAR and MEDIA, however, remained unchanged. 

The YTD September gross adex grew by +2.9% YoY to RM5.1b according to Nielsen. The higher YTD growth was mainly driven by the Pay  TV (+14.1%) segment but was partially offset by the lower contribution from the FTA (-0.3%) and Newspaper (-0.6%) segments. The higher YTD performance in the Pay TV segment, we believe, was likely due to the lower discount rate thus attracting some FTA TV advertisers to shift their spending. On the market share front, newspaper continued to command the lion share but with a lower quantum of 39.8% (vs. 41.2% a year ago) followed by 27.5% (vs. 28.4%) for FTA and 24.2% (vs. 21.8%) for Pay TV. 

MEDIA’s 3QCY12 gross TV adex climbed by +4.9% QoQ to RM713.2m, mainly driven by TV9 (+16.6% QoQ); and NTV7 (+4.8% QoQ). We suspect  the higher gross turnover recorded by both TV9 and NTV7 was mainly boosted by a lower discount rate, which lured advertisers to advertise in the two channels. Meanwhile, STAR’s  3QCY12 gross newspaper adex was lower at RM232.1m (-5.4% QoQ) while MEDIAC recorded a moderate growth of +0.8% QoQ to RM211.9m.   

Better than expected newsprint price. Newsprint price, the biggest cost component for print media, has continued to head south due to the lower demand from both China and India and a softer old newspapers price (“ONP”). The newsprint price has continued to trend downwards since 1Q from about USD700/MT to USD620/MT in end-September. Going forward, all the print media players believe that the newsprint price could potentially hover around the current level in CY13 due to the increased challenges facing the global economy. 

Newsprint inventory remained largely unchanged but with a much lower average price. STAR has continued to maintain a 12-month newsprint inventory with an average price of less than USD700/MT. MEDIA and MEDIAC, meanwhile, have 4-5 months and 6-8 months of newsprint inventories, respectively, with average prices of USD640/MT and USD670/MT, respectively. 

Fine-tuning our key earnings forecast assumptions. We have revised the following key earnings assumptions in our financial models for all media companies under our coverage. (1) We fine-tuned CY13 and CY14 GDP growth rates to 4.7% and 5.3%, respectively, from 5% each previously. (2) CY12-CY14 targeted adex growth rates were cut to 7.5%, 8.0% and 9.0%, respectively, from 10% each previously. (3) Our FY12-FY14 average newsprint price forecast has been reduced to USD680/MT from USD700/MT previously. 

Source: Kenanga