Declining dividends from media stocks

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MEDIA STOCKS that were once favoured by fund managers looking for steady dividends are seeing declining payouts amid a challenging operating environment.  

The changing landscape of the industry brought about by digital technology has caused media groups to encounter the double whammy of lower earnings and higher cost as they continue to evolve and tweak their business models or risk losing out.

“Traditionally, media groups have paid high dividends… paying as high as 60% to 100% of earnings. But in the current environment where they are suffering reduced earnings, these media companies are facing a conundrum.

“They have good balance sheets but the environment will continue to be tough next year, due to several factors that include the GST (Goods and Service Tax), so they are wondering if they should conserve cash. Moving forward, dividend payments may not be as good in the nearer term,” says a media analyst with a bank-backed research house.

Measures are already being taken by media groups to cut costs. Last month (November), local media giant Media Prima Bhd announced a separation scheme for its employees. The group explained that the exercise was part of its long term business strategy to consolidate its position as the leading integrated media group in Malaysia and make it more “resilient against intense industry competition” in a challenging operating environment. 

This year, Star Publications (Malaysia) Bhd also undertook a separation scheme exercise that cost it RM11.5 million.

Partly due to its voluntary separation scheme expense, the profit before tax of Star’s print and digital segment fell 15.6% y-o-y for its nine months ended Sept 30, 2014. The segment was also hit by lower advertising revenue for the year, partly caused by the fuel price hike and the MH370 and MH17 incidents. Star’s nine months net profit, which was supported by its events segment this time around, fell 8.2% y-o-y to RM87.8 million.

Public Bank Research lowered its target price for Star to RM2.78 per share from RM2.91 on Nov 20, while Kenanga Investment Research lowered its target price to RM2.29 from RM2.44.

“Our pessimistic view on the industry adex outlook remains unchanged in view of the recent petrol price hike, persistently high inflation rate, and ongoing subsidy rationalisation plans, which could continue dampening the already weak ad spend,” Kenanga states in its Nov 20 report.

Star, previously known for its dividends, has seen its dividend payouts decline of late. From a 21 sen gross dividend per share in FY2009, and 73.6 sen in 2010, its dividend payout dropped to 18 sen in FY2011 and FY2012, respectively.

It also paid out a lower gross dividend of 15 sen per share in 2013. Based on the stock’s closing price of RM2.32 last Tuesday, Star’s dividend yield of 7.76% in 2011 fell to 6.46% in 2013. 

Meanwhile, Media Prima’s dividend per share improved to 14 sen per share for FY2013, from 13 sen in FY2012. However, this figure is still lower than the 16 sen paid in FY2011. Based on its closing price of RM1.94 last Tuesday, Media Prima’s dividend yield declined to 7.2% in FY2013, from 8.2% in FY2011.

A similar trend is observed at Media Chinese International Limited (MCIL). From an impressive 14.688 US cents per share payout in FY2013 or a yield of about 49.9%, MCIL’s dividend payment dropped to 1.43 US cents in 2014. This dividend of 1.43 US cents per share is lower than the 2.648 US cents paid out in FY2012, and the 1.953 US cents in FY2011. At its current trading price of 84 sen at the time of writing, it has an indicative yield of 5.46%.

For its first half ended Sept 30, 2014, MCIL saw its profit drop 27.8% to RM60.11 million, compared with RM83.3 million for the same period last year.

The group, which publishes the top four Chinese language newspapers in the country, saw its turnover fall 5.8% y-o-y to RM777.9 million, mainly due to lower contribution from its publishing and printing segment. Aside from Malaysia, MCIL also has printing and publishing businesses in Hong Kong, China and North America.

According to the Global Entertainment and Media Outlook 2014-2018 study by PricewaterhouseCoopers (PwC), the global newspaper industry’s revenue decline will finally end in 2015.

“Global total newspaper revenue, after a period of decline, will start to climb again in 2015 as the growth in developing countries’ newspaper revenue begins to exceed the decline in mature markets. Growth will stabilise at 0.1% CAGR (compound annual growth rate) through to 2018,” it states.

The PwC report observes that as Malaysia’s economy has continued to expand at 8% CAGR, newspapers have retained the largest share of the country’s advertising market, which should give the newspaper sector a healthy year-on-year growth for the foreseeable future.

“Total newspaper revenue (combining both circulation and advertising revenue) is forecast to grow from US$2.1 billion (RM7.03 billion) in 2013 to US$2.6 billion in 2018, at a CAGR of 4.0%,” the report states.

“Younger consumers are turning more and more to online for their news. Digital newspaper advertising revenue reached US$15 million in 2013, which was 1% of the total newspaper advertising revenue. The publishers’ challenge will be to snag these younger audiences while continuing to grow the print sector,” it adds.

The report also identifies the industry’s biggest challenge as monetising the digital consumer.

“Although consumers are embracing digital content experiences, consumer revenue from digital sources — excluding Internet access — will reach only 17% in 2018 from 10% in 2013. More must be done to encourage not just consumers’ digital behaviours, but their digital spending.”

Recognising the need to capture the ad dollar from the digital space, local media groups have tapped this area.

For example, The Star, published by Star, launched its ePaper in 2012. The group notes that circulation for its digital edition saw a 535% jump to 49,006 copies for the six months ended June 30, 2013, compared with a year earlier.

The local media group has also been aggressively integrating its traditional and digital channels. In FY2013, it expanded its digital footprint through the acquisition of Ocision Sdn Bhd, which owns three Internet portals — iBilik.com, Propwall.com and Carsifu.com.

This article first appeared in The Edge Malaysia Weekly, on December 1 - 7, 2014.