Media - Expecting an encouraging 1QCY13

We are maintaining our NEUTRAL view on the media sector. While we believe CY13 adex performance will be encouraging in 1QCY13 due  to the likely staging of the 13^th General Election in this period, the full year adex outlook, however, still remains bleak at this juncture due to the persisting Europe debts dilemma, the absence of major sports events and more importantly, the fact that advertisers are still inclining to adopt a ‘saving for the rainy days’ approach. We have assumed an 8% YoY growth (based on a 1.5x GDP multiplier) into our media companies’ CY13 financial models. Going forward, TV gross adex is expected to remain on an uptrend path underpinned by a higher contribution from the Pay TV segment as a result of higher viewership, higher household penetration and a higher advertising discount rate. For print media, its adex growth performance  is expected to be sluggish although the net earnings impact could be cushioned by a lower newsprint cost. Media Chinese International (“MEDIAC”, OP, TP: RM1.23) remains our top pick in the Media sector. We are keeping our MARKET PERFORM ratings on both Star Publications (“STAR”, TP: RM3.11) and Media Prima (“MEDIA”, TP: RM2.34).   

3QCY12 results snapshot. The media sector has generally posted a disappointed 3QCY12 result that came in below ours as well as the street’s estimates. MEDIA is the only company in which its 3QFY12 result came in within expectations while MEDIAC and STAR’s earnings were hit by higher operating expenses and finance costs. 

The YTD October gross adex grew by +3.7% YoY to RM9.0b according to Nielsen. The higher YTD growth was mainly driven by the Pay TV (+15.3%) and FTA TV (+1.8%) segments but was partially offset by the lower contribution from the Newspaper (-1.1%) segment. On market share, newspaper continued to command the lion’s share but with a lower quantum of 39.3% (vs. 41.1% a year ago) followed by 27.6% (vs. 28.1%) for FTA and 24.6% (vs. 22.1%) for Pay TV. The adex spending trend in the non-traditional medium (i.e. Magazines, Outdoor, In-Store, Internet and Cinema) improved by 2.2% YoY to RM409m at an expense of the newsprint paper segment, particularly the English language papers. This implies that advertisers are now inclined to focus on more targeted groups and the interactive media. Our CY12 adex growth rate forecast of 7.5% YoY remains unchanged at this juncture.     

Expects CY13 adex to grow by 8% YoY but with a downside bias. While we believe the adex performance will be encouraging in 1QCY13 as a result of the likely staging of the 13^th General Election, the full year adex outlook remains bleak at this juncture due to the persisting Europe debts dilemma, the absence of major sports events and more importantly, the fact that advertisers are still inclined to adopt a ‘saving for the rainy days’ approach. We have assumed an 8% YoY growth (based on a 1.5x GDP multiplier) in our media companies’ CY13 financial models but do not eliminate the possibility that we may have to revise the number downward later should the adex growth come in below our expectation.

TV gross adex growth to be supported mainly by the Pay TV segment. The YTD October TV gross adex of RM4.7b (+7.7% YoY) was mainly boosted by the Pay TV (+15.3%) rather than the FTA (+1.8%) segment. We believe this was mainly due to the higher viewership and household penetration rate (50% vs. 46% a year ago) in the Pay TV segment coupled with the higher advertising discount rate of more than 80% as opposed to the FTA’s rate of c.66%. Going forward, we believe the abovementioned TV gross adex trend will likely to persist in view of the increasing Pay TV penetration rate.     

Better than expected newsprint price.  Newsprint price, the biggest cost component for print media, has continued to head south due to lower demands from both China and India and a softer old newspaper price. The newsprint price has continued to trend downward since 1Q from about USD700/MT to below USD600/MT in end-October. 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. We understand that 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 with average prices of USD640/MT and USD670/MT, respectively.   

Source: Kenanga