Malaysia’s advertising expenditure (adex) grew by a disappointing 2.0% y-o-y in 3QCY12, with 9MCY12 numbers closing at a dismal 0.2% growth y-o-y. The numbers fell way below our expectation of a 2x in-house 2012 GDP forecast, no thanks to weaknesses in both the TV and newspaper segments as advertisers withheld spending on A&P activities in view of the sluggish consumer sentiment. Hence, we downgrade the media sector to a NEUTRAL. We also revisited our stock recommendations following our internal resources allocation.
Subpar numbers. According to The Nielsen Co, 3QCY12 adex came in at RM2.20bn, up by 2.0% y-o-y and 4.5% q-o-q. Cumulatively, 9MCY12 numbers closed rather flattish y-o-y at RM6.07bn, registering way below our previous guidance of 2x OSK’s CY12 GDP forecast of 5.2%. On a segmental basis, the two biggest contributors, newspapers and free-to-air (FTA) TV, declined by 0.3% and 0.6% y-o-y respectively (see Table 2 for further details).
BM and Chinese publications dominate. In newspapers, Malay language and Chinese publications continued to dominate, with their 9M adex income growing by 4.0% and 1.0% y-o-y respectively. As such, Media Prima and Media Chinese (MCIL) stretched their market shares further to 31.9% and 21.1% on the back of their favourable newspaper mixes. The English segment, on the other hand, contracted 5.5% y-o-y. This came at the expense of Star Publications, which shed a 1.8% market share over the period.
FTA TV dragged. On the Free To Air (FTA) TV segment, Media Prima’s four FTA TV channels continued to dominate the airwaves, defending the company’s 86.1% market share during the 9M period. However, its market share contracted by 1.6% given that its growth had declined 2.0% y-o-y. Overall, TV’s adex share shed 0.4% y-o-y in 9MCY12 to close at RM2.21bn.
Downgrade to NEUTRAL. On the back of softer adex numbers in 9MCY12, we are downgrading the media sector to a NEUTRAL as we believe the tepid growth trend will likely persist over the next six months. While 4Q is usually the best quarter owing to the festive season, adex growth for the full year is likely to come below our latest 2012 GDP forecast of 5.2%. Signs of weaknesses, especially in the TV segment, led us to believe that consumer brands are likely to withhold their advertising spending in view of the uncertainties in the current global economy as well as domestic political scene. That said, we continue to see strength in the core fundamentals ofMCIL (BUY; FV: RM1.92) while Media Prima (NEUTRAL; FV: RM2.43) is more prone to downward pressure on earnings given its exposure to the more volatile TV segment. We make no changes to our stance on Star (NEUTRAL; FV: RM3.12), which we recommend for its yield of over 6% p.a., the highest in the sector, and Catcha Media (BUY; FV: RM0.77), which we believe is the country’s best proxy to tap into the internet media segment.
Subpar numbers. According to The Nielsen Co, 3QCY12 adex came in at RM2.20bn, up by 2.0% y-o-y and 4.5% q-o-q. Cumulatively, 9MCY12 numbers closed rather flattish y-o-y at RM6.07bn, registering way below our previous guidance of 2x OSK’s CY12 GDP forecast of 5.2%. On a segmental basis, the two biggest contributors, newspapers and free-to-air (FTA) TV, declined by 0.3% and 0.6% y-o-y respectively (see Table 2 for further details).
BM and Chinese publications dominate. In newspapers, Malay language and Chinese publications continued to dominate, with their 9M adex income growing by 4.0% and 1.0% y-o-y respectively. As such, Media Prima and Media Chinese (MCIL) stretched their market shares further to 31.9% and 21.1% on the back of their favourable newspaper mixes. The English segment, on the other hand, contracted 5.5% y-o-y. This came at the expense of Star Publications, which shed a 1.8% market share over the period.
FTA TV dragged. On the Free To Air (FTA) TV segment, Media Prima’s four FTA TV channels continued to dominate the airwaves, defending the company’s 86.1% market share during the 9M period. However, its market share contracted by 1.6% given that its growth had declined 2.0% y-o-y. Overall, TV’s adex share shed 0.4% y-o-y in 9MCY12 to close at RM2.21bn.
Downgrade to NEUTRAL. On the back of softer adex numbers in 9MCY12, we are downgrading the media sector to a NEUTRAL as we believe the tepid growth trend will likely persist over the next six months. While 4Q is usually the best quarter owing to the festive season, adex growth for the full year is likely to come below our latest 2012 GDP forecast of 5.2%. Signs of weaknesses, especially in the TV segment, led us to believe that consumer brands are likely to withhold their advertising spending in view of the uncertainties in the current global economy as well as domestic political scene. That said, we continue to see strength in the core fundamentals ofMCIL (BUY; FV: RM1.92) while Media Prima (NEUTRAL; FV: RM2.43) is more prone to downward pressure on earnings given its exposure to the more volatile TV segment. We make no changes to our stance on Star (NEUTRAL; FV: RM3.12), which we recommend for its yield of over 6% p.a., the highest in the sector, and Catcha Media (BUY; FV: RM0.77), which we believe is the country’s best proxy to tap into the internet media segment.
Tepid adex growth in 3QCY12. The newspaper segment remained Malaysia’s no. 1 advertising medium with a 51.2% share of total adex in 3QCY12. For the second consecutive quarter, FTA TV continued to gain ground at the expense of the former, bringing its adex share up to 38.3% (+136bps y-o-y). We believe this is in conjunction with the London Olympics 2012 and Hari Raya celebrations during the quarter which ticked up advertising and promotion (A&P) activities in the segment. Radio, meanwhile, remained the nation’s third core platform with 5.1% share. Overall adex only grew at a modest 2.0% y-o-y in 3QCY12, falling behind our expectations.
9MCY12 numbers missed expectations. In 1H, we were optimistic on the sector, given that adex numbers tend to be stronger in 2H (peaking in 4Q). However, 3Q numbers were disappointing, muting 9MCY12 growth at 0.2% y-o-y and missed our forecast of 2x OSK’s CY12 GDP growth estimate of 5.2%.
English papers still lagging. In the newspaper space, the market share trend remains largely the same whereby Bahasa Malaysia (BM) and Chinese publications continued to leech market shares off their English counterpart. The BM and Chinese segments grew by 1.1% and 1.8% y-o-y respectively in 3QCY12 while the English segment contracted 4.6% y-o-y, in line with our prior view that English-literate readers are becoming increasingly fond of accessing the web for news flow. Overall, newspaper adex fell 0.9% y-o-y in 3QCY12 (9MCY12: -0.7% y-o-y).
Media Prima and MCIL continue to expand market share. Star Publications continued to dim, losing market share to both Media Prima and MCIL in 3QCY12. Led by Harian Metro (+19.5% y-o-y), Media Prima’s adex income expanded 6.7% y-o-y during the quarter. Media Chinese’s numbers, however, were almost flat, growing at only 0.3% y-o-y. Persistent drag in readership and saturated advertising space mired Star Publications, shrinking its adex income by 7.7% y-o-y and bringing down its adex share to 20.6% in 3QCY12.
Media Prima’s TV segment disappoints. Moving on to the FTA TV segment, the six public channels registered adex of RM843.5m in 3QCY12, up by a decent 5.8% y-o-y and 7.8% q-o-q. On a 9MCY12 basis however, TV’s share of adex shed 0.4% y-o-y to close at RM2.21bn vis-à-vis our expectation of a 5% growth for the year. We attribute the shortfall to advertisers holding back their advertising budget in view of softening consumer spending amidst increasing political uncertainty. Consequently, Media Prima’s channels, particularly NTV7 and 8TV, registered a slide of 2.0% in adex share.
Downgrade to NEUTRAL. In view of the softening 9MCY12 adex numbers, we are downgrading our call on the media sector to a NEUTRAL for the time being as we believe the tepid growth trend would likely persist over the next six months. While 4Q is usually the best quarter due to the festive season, we believe adex growth for the full year is likely to be below our latest 2012 GDP forecast of 5.2%. Signs of weaknesses, especially in the TV segment, led us to believe that consumer brands will likely hold back their advertising spending in view of uncertainties in the global economy as well as in domestic politics. Having said that, we believe stock selections could prove to be essential as we continue to see strength in the core fundamentals of MCIL (BUY; FV: RM1.92). Media Prima (NEUTRAL; FV: RM2.43), meanwhile, is more prone to downward pressure on earnings given its exposure to the more-volatile TV segment. We make no changes to our stance on Star (NEUTRAL; FV: RM3.12), which we would recommend for its yield of over 6% p.a., the highest in the sector, and Catcha Media (BUY; FV: RM0.77), which we believe is the country’s best proxy to tap into the internet media segment.
Stock Recommendations
MCIL our top buy. Although MCIL’s adex growth came in softer than what we had earlier expected, we continue to like the company, for i) its management’s stringent cost controls, ii) its relatively sturdy earnings base focusing solely on the less-volatile print media segment, and iii) near-monopoly presence within the Chinese publication universe. We continue to see strength in MCIL’s Malaysian operations, which contribute over 80% to the group’s consolidated profit. Coming off the bumper dividend of RM0.41 per share proposed earlier in June, the group’s capital structure is better optimized now with a forecasted net gearing ratio of 34.8% by FY14. We are forecasting a decent yield of 5.0% in FY14. On a side note, the proposed listing of the group’s travel operations on the Hong Kong Stock Exchange would have an insignificant impact on its operations. Following the transition of coverage, we revisited and revamped our model to better reflect MCIL’s financials post the bumper dividend as well as for housekeeping purposes. With that, our core earnings forecasts are upgraded by 3.0% for FY13 and 17.7% for FY14. Correspondingly, our FV is revised upward to RM1.92 based on an unchanged 13x CY13 PER. Maintain BUY.
MCIL our top buy. Although MCIL’s adex growth came in softer than what we had earlier expected, we continue to like the company, for i) its management’s stringent cost controls, ii) its relatively sturdy earnings base focusing solely on the less-volatile print media segment, and iii) near-monopoly presence within the Chinese publication universe. We continue to see strength in MCIL’s Malaysian operations, which contribute over 80% to the group’s consolidated profit. Coming off the bumper dividend of RM0.41 per share proposed earlier in June, the group’s capital structure is better optimized now with a forecasted net gearing ratio of 34.8% by FY14. We are forecasting a decent yield of 5.0% in FY14. On a side note, the proposed listing of the group’s travel operations on the Hong Kong Stock Exchange would have an insignificant impact on its operations. Following the transition of coverage, we revisited and revamped our model to better reflect MCIL’s financials post the bumper dividend as well as for housekeeping purposes. With that, our core earnings forecasts are upgraded by 3.0% for FY13 and 17.7% for FY14. Correspondingly, our FV is revised upward to RM1.92 based on an unchanged 13x CY13 PER. Maintain BUY.
Less keen on Media Prima. While Media Prima’s print segment chalked in a decent 4.8% growth y-o-y in adex share as of 9MCY12, the subpar performance in its TV segment, which shed 2.0% over the period, came in as a negative surprise. That said, we are taking a precautionary approach and slashing our FY12 and FY13 earnings forecasts by 10.0% and 7.7% respectively, with our recommendation downgraded to NEUTRAL at a revised FV of RM2.43 based on a lower FY13 PE of 13x (from 14.5x previously). Media Prima’s valuation is on par with MCIL’s despite the former being involved in the more lucrative TV segment. We are turning more cautious in view of potential downward earnings pressure going forward given that the advertising budget on TV is relatively more volatile. We foresee potential inflation risks post the 13th General Election (which now seems likely to only happen in 1HCY13) should there be any subsidy cuts as the Government attempts to balance its books, which could in turn impede consumer spending.
Faded shine from the Star. The subpar showing from Star’s adex share justifies our neutral stance on the company. Some of the headwinds that the group is facing include: i) the accelerated migration of English-literate readers to internet media, ii) dwindling adex share on a declining readership base, and iii) the narrowing advertising premium between English and non-English papers. With that, we took the opportunity to revisit our model and trimmed our FY12 and FY13 earnings forecasts by 2.6% and 2.1% respectively. Nonetheless, Star’s decent balance sheet strength, with a net cash balance of RM0.31 per share as of June 2012 coupled with operating cash flows of over RM250m p.a., would help to support its dividend yield at over 6% p.a. over the next two years. Maintain NEUTRAL with our FV revised to RM3.12 based on a revised 11.7x FY13 PE, pegging a 10% discount to MCIL’s valuation due to its shrinking readership base. Should its management succeed in turning the operations of some of its latest acquisitions around, we would revisit our recommendation in view of the group’ new position as a media conglomerate.
Catcha Media our sole internet play. Within the micro-cap space, we see Catcha Media (BUY, FV RM0.77) as one of the best proxies to the fastest-growing media segment – the internet. We expect earnings accretion from its e-commerce arm, Haute Avenue, by end of this year as it capitalizes on the expansion of the portal’s healthy membership numbers and the growing trend in internet shopping among Malaysians. Meanwhile, the listing of iCar Asia on the Australia Stock Exchange would help it unlock the value of its investment in the company. We believe this regional car trading portal could be the next iProperty in the making. Our BUY recommendation at RM0.77 FV is premised on 12x FY13 PE.
Source: OSK
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