Media - Adex sentiment remains cloudy

We are maintaining 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 (based on a 2.0x GDP multiplier). The weaker-than-expected YTD adex was mainly caused by the persisting Europe debts dilemma and the uncertainty of the General Election, which had led  advertisers to continue to adopt a ‘saving for the rainy days’ approach. We reckon advertisers will only turn aggressive when these concerns become lesser. While we believe that the adex sentiment will improve on a month-on-month basis going forward due to the seasonality factor, we are likely to review our full-year  adex forecast (with a downside bias) after having a clearer picture on the 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. We maintain our 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 target prices continue to be kept 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. 

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.

Newspaper YTD gross adex was lower by 1.9% YoY to RM2.5b. The relatively weak performance was mainly caused by the contraction in both the English (-7.3% YoY) and Chinese (-1.2% YoY) segments but partially offset by a higher contribution from the Malay (+3.9% YoY) segment. The Malay newspaper segment has recorded the fourth consecutive positive MoM growth of 2.1% during the month of August. Meanwhile, the Chinese newspaper growth was relatively flattish at -0.2% MoM (July 12: +0.4%) while the English segment continued to contract by -3.0% (July 12: -3.0%). MEDIAC, STAR and MEDIA’s newspaper gross adex recorded a -1.3% YoY, -11.0% YoY and +6.0% YoY respectively in QTD August. The sharp drop in STAR was mainly due to the continued lack of confidence by advertisers, in our view, despite the company’s readership and circulation numbers having shown some signs of recovery. We do not discount that some advertisers may or have shifted some of their adex budgets from the English to the Malay segment due to the increase in the latter’s circulation numbers.  

The YTD Pay TV gross adex has continued to gain  12.6% YoY to RM3.6b at the expense of FTA TV, which contracted by 1.4% YoY. On a MoM basis, both Pay and FTA TV adex were lower by 8% and 5% respectively. The drop marked the end of the positive MoM growth in both the Pay and FTA TV segments since February 2012. We suspect the fall, to a certain extent, was related to the lower discount rate provided by TV operators thus dampening the advertisers’ appetite. MEDIA’s gross TV adex was relatively flat at -0.1% to RM487m in QTD August thanks to the strong performance of TV3 (+13.6% YoY) but partially offset by the lower growth in 8TV (-0.2%), NTV7 (-2.4%) and TV9 (-3.3%). FTA TV continued to command the lion share of the total YTD TV adex with a 53.4% share (YTD August 11: 56.7%).     

Source: Kenanga