KUALA LUMPUR (July 23): AmInvestment Bank Bhd has maintained its "neutral" recommendation on the media sector for the second half of 2020 (2H20) as the challenging operating environment exacerbated by Covid-19 will further dampen prospects.

In a note today, the research house said the media sector’s lacklustre outlook is due to the worsening performance of traditional media such as print, radio and television subscriptions amid the structural shift to digital offerings, poor adex outlook worsened by the Covid-19 impact and the inability of digital revenue growth to offset traditional media declines.

Citing Nielsen Ad Intel, the research house said advertising expenditure (adex) across all media stood at RM1.1 billion in 1Q20. On a year-on-year (y-o-y) basis, traditional media segments faltered by 9% overall mainly due to the decline in newspaper and cinema ad spend.

It explained that newspaper ad spend, which represented 33% of total adex in 1Q20, shrank 24% y-o-y by RM111 million, likely worsened by the cessation of operations for Utusan Group’s publications Utusan Malaysia and Kosmo! since 4Q20, on top of the continued reduction in circulation.

Meanwhile, cinema ad spend, which Nielsen categorises as "others", had declined 25% y-o-y by RM11 million.

“We believe that tougher economic conditions ahead will caution advertisers and cause them to tighten ad spend. Furthermore, major sporting events such as the UEFA Europa League and the Tokyo Olympic Games have been postponed from June and July 2020 due to the Covid-19 pandemic.”

The research house said it also believes circulation, out-of-home and traditional radio revenues were not spared by the Covid-19 impact, as less customers were likely to frequent newsstands and commute during the movement control order (MCO) was reduced due to more people working from home and travel restrictions.

“Another segment obviously hit by the impact of the virus would be Media Chinese International Ltd’s travel segment which accounted for 36% group revenue in 9MFY20.”

However, AmInvestment observed a silver lining as two segments were spared from the Covid-19 impact. One of these is home shopping, where Media Prima Bhd saw CJ Wow Shop’s revenue rising 3% quarter-on-quarter (q-o-q) and 18% y-o-y in 1QFY20 and 13% new registered customers y-o-y while also recording the first-ever break-even quarter.

The digital segment, in which Media Prima saw a 4% increase in revenue q-o-q and Star Media Group Bhd reported engagements, rose during the MCO with increased traffic across their digital platforms.

“We believe Covid-19 has hastened the decline in traditional media revenues as adex suffers while bringing to light the rush to strengthen digital offerings and diversify non-adex revenues.”

With a challenging operating environment ahead, media companies need to improve operational efficiencies with more prudent cost-saving measures put in place to cushion the impact of lower revenues, it added.

AmInvestment said it may upgrade the sector to "overweight" if growth in digital initiatives can meaningfully offset declines in traditional media consumer confidence and adex catalysts re-emerge, translating to higher ad-spend across all mediums and possible privatisation and merger and acquisition opportunities arise.

A downgrade to "underweight" is possible if monetisation of digital content remains challenging due to intense competition, longer-than-expected gestation and traction of media players’ digital initiatives and significant deterioration in adex and traditional media revenues.