Corporate: Consumer sentiment, possible snap polls put media stocks on watch list

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Media stocks are in focus this year, driven by expectations that media companies could reap gains in advertising revenue on the back of continued economic recovery, optimistic consumer sentiment and anticipation that the 14th general election could be called as early as 2H2011.

Media analysts expect to see strong growth for media companies in 1H2011, driven by more advertising spending in tandem with projected economic growth. But they warn that the lack of “ad-friendly” global events this year could contribute to some weakness in advertising spending.

As the world economy picked up pace last year, large-scale international events like the FIFA World Cup 2010, Commonwealth Games and the Thomas and Uber Cup badminton events brought a wealth of advertising opportunities. But if indeed the general election is called this year, this would prove to be a strong growth driver in advertising expenditure (adex) particularly for television and print media, analysts say.

A general election must be held at least once in five years and the deadline for the next election is 2013, since the last was held in March 2008. Historically, gross total adex growth during quarters with general elections surged by more than 20% y-o-y, says ECM Libra in a note dated Jan 5.

Elections aside, Prashant Kumar, CEO of Mediabrands Malaysia (Universal McCann & Initiative), is positive about the media sector and expects to see “a lot of energy” on the scene this year.

“Last year, people were still cautiously optimistic so investments were more short-term. But this year, we see people bringing out their medium to long-term plans so there is a lot more activity,” says Prashant in a telephone interview.

Companies are gearing up to benefit from the wave of developments, while offshoots from the government’s Economic Transformation Programme (ETP) are expected to drive further activity across all sectors, he adds.

Prashant, the vice-president of the Media Specialist Association (MSA), estimates that adex could record growth of about 15% in 2011.
Adex growthAn analyst with AmResearch says that while adex growth is expected to continue trending upwards, it is expected to be less robust compared with last year, as 2010 started from a lower base.

Data from Nielsen Advertising Information Services shows that media expenditure grew 15.8% to RM6.87 billion for the 11-month period in 2010 from RM5.94 billion during the same period in 2009.

McCann-Erikson (Malaysia) Sdn Bhd CEO Tony Savarimuthu says 2010’s overall adex growth was considered healthy for measured media but noted that the figures have to take into consideration the account discounts and bonuses, believed to be lower than in previous years. Based on the brands his company handles and those it watches regularly, real adex is estimated to be in the region of RM8 billion.

This is given the growth in unmeasured media such as sponsorships, brand activation, digital customer relationship management and retail activities, he says.

In Malaysia, newspapers tend to get a bigger chunk of adex than television but Prashant believes the country is catching up with global trends, which see a larger portion of media expenditure going to television advertising.

According to Nielsen Advertising Information Services, newspaper advertising spending, which took up over half of total media expenditure in 2010, increased 13.9% to RM3.51 billion from RM3.08 billion in 2009. Terrestrial television spending, which accounted for 37.5% of total media expenditure in 2010, grew 19.1% to RM2.58 billion from RM2.17 billion a year ago.
Media Prima heads the listMain Market-listed Media Prima Bhd remains analysts’ top pick for media stocks given the group’s diverse media platform, which spans newspapers, three television networks, radio stations, alternative media and outdoor advertising.

The other media companies listed on Bursa Malaysia, such as Star Publications Bhd, Media Chinese International Ltd, Utusan Melayu (Malaysia) Bhd and Berjaya Media Bhd, are primarily involved in the print segment.

In its latest results, Media Prima’s net profit in 3QFY2010 ended Sept 30, 2010, jumped four-fold to RM71.87 million from RM17.26 million a year ago, driven by strong performance by all its business segments.

Pre-tax profit surged 90.3% to RM94.34 million from RM49.64 million, while its revenue doubled to RM416.75 million from RM206.35 million a year ago, primarily from Media Prima’s acquisition of The New Straits Times Press (Malaysia) Bhd (NSTP) group.

In the notes accompanying its financial results, Media Prima says it recorded a 23% growth in revenue excluding NSTP.

For the nine months, Media Prima’s net profit surged to RM152.09 million from a mere RM2.49 million, while revenue tripled to RM1.14 billion from RM525.53 million a year ago.

Earnings per share was 7.29 sen against 2.02 sen a year ago, while its net assets per share was RM1.16 as at Sept 30, 2010.

Media Prima shares closed at a two-year high of RM2.70 on Jan 4 and 5 but have since dropped to RM2.67 last Thursday.

Moving forward, Media Prima says it is optimistic about an improved outlook for both consumers and advertisers as the  economy continues to grow.

The group says it plans to realise the value of its diverse media platforms by embarking on various integration initiatives involving the assimilation of its recent investments in NSTP, Kurnia Outdoor Sdn Bhd and Jupiter Outdoor Networks Sdn Bhd into the enlarged Media Prima group structure.

“These include improving revenue-generating capacity and improving operational efficiencies to achieve synergy within the group’s stable of media assets,” Media Prima says.

The company declared a single-tier interim dividend of four sen per share for FY2010 ended December. For FY2009, Media Prima declared a dividend of 5.6 sen.

The stronger ringgit against the US dollar will likely benefit Media Prima by somewhat reducing the cost of purchasing television content from the US.

The company is also set to further monetise its television programmes with a deal to provide content to YTL Communications Sdn Bhd’s hybrid television service on its 4G mobile network, launched in November last year.

Apart from that, NSTP is expected to contribute to Media Prima’s earnings as its Malay language tabloid Harian Metro continues to record growth in circulation even as its two other titles, the New Straits Times and Berita Harian, see weaker numbers.

ECM Libra also says that advertisers have pushed more of their budgets to tabloid Harian Metro from Berita Harian and New Straits Times, stemming the flow of advertising revenue to newspapers outside the NSTP stable.

AmResearch’s media analyst says the research house also has a “buy” call on Star Publications (Malaysia) Bhd as the group’s flagship English language daily The Star enjoys a stranglehold on the English adex market and a stable circulation.

ECM Libra says it understands from Media Prima, and has verified with media buyers, that television adex is poised to grow in low double digits y-o-y in 1QFY2011. It says the expected growth is respectable given the lack of adex-friendly events scheduled for this year, except for the general election if it is called.

ECM Libra says Media Prima is its favourite election play among all the listed media stocks.

“Historically, general elections favour adex sentiment as the government spends to engender the ‘feel good’ factor. Major beneficiaries are television and Malay and English newspapers ... Media Prima is dominant in the former two,” ECM Libra says.
Untapped opportunitiesAccording to Prashant, there are still untapped opportunities in the Malay newspaper segment as Star Publications attempts to grow its Malay weekly publication Mingguan mStar and NSTP gets aggressive on its Malay language titles.

The Tamil and Chinese newspaper segment remains relatively stable, industry observers say, but analysts are also upbeat on Media Chinese International Ltd (MCIL), which is listed on both the local bourse and the Hong Kong stock exchange.

MCIL owns various Chinese language newspapers and magazines in three regions: Malaysia and Southeast Asia, Hong Kong and mainland China, and North America. The group also has a travel and travel-related services segment.

Analysts note that MCIL’s valuation is still trailing behind its peers such as Star Publications and Media Prima that are trading at a forward PER of 13 and 14 times respectively.

In its 2QFY2011 ended Sept 30, 2010, MCIL’s net profit jumped 40.89% to RM43.24 million from RM30.69 million a year ago, driven by growth in its publishing and travel segments.

Pre-tax profit climbed 20.25% to RM133.57 million from RM111.08 million while revenue soared 21.56% to RM133.57 million from RM111.08 million.

EPS was 2.56 sen against 1.82 sen a year ago. MCIL’s net assets per share was at 68.34 sen.

In a press statement, MCIL says it reported a 22% growth in advertising revenue, supported by a strong rebound in the Malaysian and Hong Kong advertising markets.

For the six-month period, MCIL’s net profit soared 86.52% to RM84.32 million from RM45.21 million on the back of a 21.95% increase in revenue to RM683.71 million from RM560.62 million a year ago.

Malaysia and Southeast Asia was MCIL’s largest segment, contributing over half of its revenue and over 80% to its pre-tax profit.

AmResearch says it is upbeat on MCIL, given its monopolistic position within the Chinese language newspaper segment in Malaysia, with an estimated combined readership of 93%, as well as the second highest pricing power for advertisements across the newspaper industry.

MCIL says it remains cautious about the pace and sustainability of the economic recovery despite evidence of improved trading conditions in most markets it operates in.

“While we remain diligent in managing our operating expenses, we expect costs to be a challenge in the remainder of this financial year due to rising newsprint prices, renegotiations of some collective agreements in the group and an increase in promotional spending for the group’s titles,” MCIL says.

The company adds that it expects a deceleration of revenue growth in 2HFY2011, but still expects to post satisfactory results for the full FY2011. For FY2010, MCIL declared an interim dividend of 80 US cents (RM2.46 or HK$6.20).

Apart from the more traditional media platforms like television and newspapers, interest is also focused on the expected growth in advertising spending on the Internet and in-store media, in which none of the listed media companies have a strong footing. 

In-store media or point-of-sale (POS) advertisements refer to advertisements like wall banners, shelf dress-ups and advertisements placed on travellators, freezers and supermarket trolleys.

Tony, the vice-president of the Association of Accredited Advertising Agents of Malaysia (AAAA), believes that Internet adex will double in 2011, driven by the ripple effect of increasing usage of smartphones and tablet computers.

“As bandwidth and speed improves, more content and applications are going to spur growth in expenditure. This is different from the Internet bubble. This is real as millennials are entirely dependent on digital and mobile devices,” he says.

The Nielsen Advertising Information Services data shows that advertising spending in the Internet segment surged 30.5% to RM46.2 million from RM35.42 million in 2009, with Internet spending accounting for 0.7% of total media spending in 2010.

The report also says in-store media recorded 40.9% growth to RM110.94 million from RM78.74 million a year ago, but in-store media spending was merely 1.6% of the overall media expenditure in 2010.

Industry observers say Internet and in-store media tended to see higher growth in adex given that the base was lower.

But for now, the expectation is that advertising money will continue to flow in the direction of newspaper and television operators.
This article appeared in Corporate, The Edge Malaysia, Issue 840, Jan 10-16, 2011