2QCY12 advertising expenditure (adex) grew 20% q-o-q and by a marginal 2% y-o-y to RM2.1bn. We deem the increase within forecast, thanks to the adex-friendly Euro 2012 in June and the fact that advertisers had started to spend compared with 1QCY12, during which they were skeptical and preferred to watch how economic conditions unfold. We maintain OVERWEIGHT in anticipation of a strong rebound in 2HCY12, which coincides with the adex-friendly Hari Raya Aidil Fitri, the 2012 Olympics and the impending General Election (GE13). We maintain our growth forecast at 2x our FY12 house GDP growth estimate of 5.2%. Media Prima (BUY, FV RM2.98) and Media Chinese (BUY, FV RM1.86) are our top sector picks.
Adex growth within expectations. According toNielsen Research, adex came in at RM2.1bn for 2QCY12, rebounding by 19.9% q-o-q and 1.7% y-o-y, partly attributed to the Euro 2012. We also gather that advertisers also finalized their advertising and promotions (A&P) budgets during this period. The three core media platforms, namely newspapers, free-to-air (FTA) TV and radio saw y-o-y adex growth of 0.1%, 1.9% and 4.6% to RM1094.5m, RM782.8m and RM114.2m respectively. Cinema and outdoor media adex, meanwhile, surged 22.7% and 25.3% y-o-y respectively. (Note that we did not include the Internet segment’s adex, as internet operators had not provided data to Nielsen, which would only publish the numbers in 3QCY12.)
We maintain our growth forecast. On a quarterly basis, adex across the media platforms rebounded strongly with the FTA TV, newspaper, magazines and radio segments climbing 34.1%, 12.3%, 27.4% and 20.9% respectively in 2QCY12. In June, adex grew 7% m-o-m due to the Euro 2012, with FTA TV recording 18% m-o-m growth. In view of June’s strong adex pick-up, the on-going 2012 Olympics and Muslim festive season around the corner as well as the highly-anticipated GE13 - which is expected to be held in 2HCY12 - we are maintaining our 2012 adex growth forecast at close to 2x our house forecast of 5.2% GDP growth for 2012.
Maintain OVERWEIGHT. We remain positive on domestic consumer spending momentum, given the rollout of the Government’s Economic Transformation Programme (ETP). We like Media Prima (BUY, RM2.98), being Malaysia’s largest integrated media player and a FTA TV leader with strong print media businesses led by Harian Metro and Berita Harian in its stable. The stock is currently trading at an attractive FY12 PER of 11.7x, with a 4.2% dividend yield. We also favour Media Chinese (BUY, FV RM1.86) for its prudent cost controls and the huge underlying potential of its publications in view of the growing Chinese-literate population as well as the increasing importance of the language in the global arena. We also see a good Buy in Internet-based media company Catcha Media (BUY, FV RM1.03), which registered growth of 19.8% y-o-y for 2011 and 9.8% y-o-y for 1QCY12. We are less keen on STAR (NEUTRAL, FV RM3.46), which is facing a circulation decline. Nevertheless, we believe the group will continue to pay out generous dividends in view of its net cash per share of RM0.63. We are maintaining our DPS forecast of 19.2 sen for STAR, based on a 75% payout ratio, which translates into a 6% dividend yield.
Print loses ground to FTA TV. The newspaper segment remained the nation’s most popular advertising medium, with the lion’s share of 51.7% of total adex. However, it lost some ground to FTA TV, recording a slight decline in adex share of 47.4bps y-o-y in 2QCY12 to RM1094.5m. In contrast, the adex share of FTA TV channels expanded by 33.9bps y-o-y to 37%, thanks to Euro 2012 and the fact that advertisers had kicked off A&P activities in the FTA TV segment, with telco, banking, insurance and fast-moving consumer goods companies opting for TV over print to place advertisements in. Meanwhile, radio remained the nation’s third core platform, gaining 18.4bps in market share and bringing its share of the adex pie to 5.4%.
Non-English publications add market share. Bahasa Melayu (BM) and Chinese newspapers continued to register decent adspend growth and adex share. The adspend of BM publications increased by 5.8% y-o-y while their share of adex inched up 180bps. The Chinese newspapers also saw their adex and market share grow by 1.7% y-o-y, and 40bps respectively at the expense of English papers, whose shares on both counts slipped 220bps and 5.4% y-o-y respectively. This is in line with our view that English-literate readers are increasingly leaning towards accessing the news via the Internet.
Star loses its shine? Media Prima and Media Chinese’s aggregate market share and ad-spend continued to grow healthily, reinforcing our upbeat view on both companies. Media Prima registered a y-o-y adspend growth of 3.7% in 1HCY12, 3.9% in 2QCY12 and a market share growth of 3.9ppts – led by its flagship products Harian Metro, which saw its 2QCY12 adex rise 13.9% y-o-y and 29.9% q-o-q. Although Media Chinese’s adex income ticked up by a marginal 0.2% y-o-y in 2QCY12 and garnered the smallest portion of total adex, it managed to maintain its 20.5% market share. We are positive on the group’s future performance as the Chinese-literate population continues to grow, putting greater emphasis on the language globally. On the other hand, Star Publications continued to lose its shine, registering a drop in both adex (-8.4% y-o-y) and adex share (-210bps), primarily due to dwindling readership and the saturation of advertising space.
TV catches football fever. Thanks to Euro 2012, FTA TV’s surged 18% y-o-y to RM50m in June, breaking the past eight consecutive months’ downtrend, with a 2% y-o-y and 34% m-o-m adex growth in 2QCY12. We attribute this mainly to the spending by advertising agencies, which favoured TV over newspapers and other media platforms.
Media Prima still in the lead. Media Prima’s four FTA TV channels continued to dominate the air waves, defending its 87.6% market share. We remain optimistic on the group’s ability to keep its lead given its focus on content creation and the implementation of a segmented approach to address viewers’ needs based on demographics. We are also positive on the new MCMC ruling on sharing of sports content, which gives the group strong upside potential.
On 19 April, MCMC announced that from 1 May FTA TV operators could from now broadcast content obtained from rights holders like ASTRO, based on reasonable commercial terms. ASTRO has already collaborated with Media Prima to broadcast selected sports events on a small scale. While there is still no indication on the charges that FTA TV operators will impose, this will benefit Media Prima one way or another. Should negotiations between the Pay TV and FTA TV operators bear fruit, Media Prima’s adex growth will be robust. However, we are maintaining our FTA adex growth of 5% for 2012 at this juncture, pending the release of more details on content charges for sports events.
Valuations/recommendations on Media companies under our coverage
Media Prima’s adex encouraging. We like Media Prima (BUY, FV RM2.98) for its: (i) status as the nation’s sole integrated media player with exposure across all media platforms, (ii) strong print media business, with a dominant position in the BM daily space, thanks to BM sub-segment adex market share leaders Harian Metro (47.9%) and Berita Harian (24.1%), and (iii) its leading FTA TV position with the lion’s share of 87.2% in adex. With such encouraging adex growth, we are bullish on the group’s potential to lure more adex monies from the other media platforms in 2HCY12. Based on its 34% q-o-q TV adex growth as well as Harian Metro’s 13.9% y-o-y and 29.9% q-o-q adex growth, we believe that the group will register healthy mid single digit q-o-q and y-o-y growth in its upcoming 2QFY12 results, which are expected to be announced on14 Aug 2012. Should negotiations on content sharing rates between the Pay and FTA TV operators bear fruit, Media Prima is likely to record strong adex growth moving forward. Nonetheless, we are maintaining our 4% adex growth forecast, pending the release of more concrete details on content sharing charges between TV operators.
Media Chinese still a BUY. Media Chinese (BUY, cum-FV RM1.86) has high potential, considering the country’s growing Chinese-literate population and the increasing emphasis on the language in the global arena. The company’s advertising space is still largely untapped, as its existing publications are skewed towards editorial content as opposed to advertising, at a ratio of 60:40. MCIL’s recent proposed capital repayment of 41 sen bumped up its ROE to 20%, turning it into the highest-ROE media company in Malaysia. While it was surprising that the company paid huge dividends amounting to RM700m. or RM0.41 per share funded through RM500m in borrowings, MCIL will no longer be a cash cow after the payout; it will have to service interest on the loan amounting to RM30m p.a. going forward, based on a 6% p.a. interest rate. We maintain our BUY call for now, considering the group’s ability to pay the debt interest as well as dish out dividends based on a 60% payout ratio, assuming that it does not take on any major capex in the next three to four years. Note that MCIL has a strong free cash flow of approximately RM60m per quarter. Our cum-capital repayment FV is MYR1.86 based on an unchanged 13x FY13 PER. With marginal growth of adex recorded in 2QCY12, and the appreciation of the USD (which poses a threat), we still expect the group’s 1QFY13 results to be in line with our projection of healthy growth in the mid-single digit, boosted by prudent cost controls and its healthy Malaysia and Hong Kong operations.
Riding on robust Internet growth. Within the small- to mid-cap space, we like Catcha Media (BUY, FV RM1.03) for its potential to reap benefits from the Internet media segment, which continued to record a healthy y-o-y adex growth of 9.8% in 1QCY12. Note that adex for this segment was not available in 2QCY12. As Internet advertising grows in tandem with the expansion of broadband services, Catcha Media will benefit from telco companies’ aggressive rollout of broadband services and Government initiatives to boost household Internet penetration. We also expect its e-commerce arm, Haute Avenue, to blossom going forward, capitalizing on its healthy membership growth and the growing trend in internet shopping among Malaysians, especially young working adults. We maintain our BUY call, at an unchanged FV of RM1.03, based on a 12x FY12 PER. An upward re-rating is imminent when iCar Asia is eventually listed on the ASX. iCar Asia is a new online car classifieds company comprising Catcha’s 50%-owned Auto Discount, Mobil 123 (Indonesia’s most notable used-car trading website) and Autospinn (Thailand’s leading online auto news website for car enthusiasts). Post-listing, Catcha will hold a 40.4% stake in iCar Asia)
Not a shining Star. We are less keen on STAR (NEUTRAL, FV RM3.46), which is facing a declining readership, dwindling adex share and a saturation in advertising space. While the group is strengthening its position as a complete media group via the purchase of CNM Events SB, which owns Perfect Living and Perfect Lifestyle for RM45m and which translates into a forward PER of 6x, we are keeping NEUTRAL on the stock due to its limited upside. Still, we believe the group will continue to pay out lucrative dividends in FY12, judging from its huge net cash pile of RM513.4m, or net cash per share of RM0.63. We are maintaining our DPS forecast of 19.2 sen based on a 75% payout ratio, translating into a dividend yield of 6%.
