Thursday 28 Mar 2024
By
main news image
This article first appeared in The Edge Malaysia Weekly, on October 24 - 30, 2016.

 

THE out-of-home (OOH) advertising business may be a locally focused trade but Malaysian players in the industry believe they have now built enough strength and know-how to spread their wings overseas.

Big Tree Outdoor Sdn Bhd CEO Jeff Cheah tells The Edge in an exclusive interview that the company is in active talks with foreign parties for its first venture overseas soon.

“Yes, we are talking to a couple of parties in Indochina. They are in this business also. In our line, finding a local business partner is key. We want to be very careful in getting the right partner for our overseas venture, so we are still hunting for a good partner,” says Cheah. Big Tree is the OOH business unit of listed Media Prima Bhd.

“We need a local partner for our business … either buy into a company or go into a JV (joint venture) with a partner that has local experience or understands the local environment. Our business is very much dependent on the local government,” he says, declining to reveal the names of the foreign parties Big Tree is talking to.

Meanwhile, Ancom Bhd’s Redberry Group is also in talks with foreign parties to further expand its presence overseas. It began venturing abroad five years ago.

“We are bidding for several big concessions coming up in Indonesia. We are hopeful because of our experience and expertise in transit media,” says Redberry chief operating officer Datuk Wong Sai Wan.

The company has 1,000 TV screens along the aisles of hypermarkets in Indonesia — the first foreign market it entered into five years ago through a joint venture with a conglomerate there.

“In Singapore, we have a joint venture to set up LED screens and have a huge one at Orchard Central along Orchard Road. It is the first of its kind on the island. As for Thailand, our partner in the SBK MRT (Sungai Buloh-Kajang mass rapid transit) line is VGI [Global Media PCL], which is probably the most profitable transit media company in the world with a [market] capitalisation of over US$1 billion.

“We have three partners in three countries. We are now working out a strategy to leverage each other’s assets,” Wong says, adding that Redberry is looking regionally in the medium term.

“By having partners like [Thailand-listed] VGI, we will be able to expand our reach to beyond just Asean countries in terms of clients … And by expanding into the region, we will reduce our dependency on just the Malaysian market and reduce the impact of the depreciated ringgit,” he remarks.

 

Digital shift

As for Malaysia, Wong believes digital is the way to go, revealing that Redberry will be announcing an acquisition of such assets soon. “Digital earnings make up more than 10% of our revenue right now,” he says.

“Like all other advertising mediums, we have to react to the digital age. More and more clients are demanding specific data. They are expecting statistics like Google Analytics. We cannot ignore this and are actively looking at several technologies that can give us stats akin to Google Analytics … Besides that, we have to be more receptive to our clients’ craziest ideas either through using technology or ambient or even activation advertising to accommodate them,” he adds.

Cheah says Big Tree already has a handful of digital inventory but “there is room to grow” in the segment.

He notes that returns on investment for the digital segment are good and it contributes about 10% to the group’s top line, despite the small digital-to-normal-billboards ratio, in terms of inventory.

“We have invested close to RM10 million in the past five years. The returns [for digital] are definitely a lot better if you execute it correctly. There are a lot of people who have failed in their deployment. It is the criteria that makes our roll out successful,” Cheah reckons.

“We position our outdoor digital screens with creativity and premium. That is why we are very selective in our deployment — it has got to be upmarket, and in a high-traffic area … we have a full list of criteria in selecting locations for OOH digital screens. We believe, and it has been proven, that digital media is very different compared to static. So, it requires very different criteria. It is not just the hardware that we invest in but also the software and creativity,” he says.

Cheah believes that the OOH industry is more resilient compared with other mainstream media because it is less affected by the digital disruption. “This is simply because the number of cars on the road is still growing and population is still growing here, and no matter how they change their media consumption at home, they still need to get out of the house. In this environment, the outdoor adex (advertising expenditure) will continue to grow.”

 

Expansion strategies moving forward

Looking ahead, Cheah shares that the digital route is one of Big Tree’s expansion strategies.

“Another growth engine is infrastructure projects, such as railway transport. We expect a 5% to 8% addition to our existing net revenue and a 3% to 5% addition to our bottom line from the LRT (light rail transit) extension concession we received recently. As for the MRT, we are looking at an estimated 10% of new revenue per annum for us.

“We are in talks with existing highway operators as well,” Cheah says, but declines to disclose the names.

Big Tree recently bagged the contract for advertising for the additional 35km LRT track from Subang to Puchong, and also won the a package for the MRT line in a JV with Seni Jaya Sdn Bhd.

Its main revenue is from its billboard business that contributes 55% to its top line while infrastructure makes up 28%; shopping malls, 5%; airports in Kota Kinabalu and Kuching, 2%; and digital, 10%.

Just last month, Mass Rapid Transit Corp Sdn Bhd announced 10-year concessions where both Package A for station advertising and Package C for train advertising were awarded to Titanium Compass Sdn Bhd, while the concession for Package B for exterior advertising was awarded to the Big Tree-Seni Jaya consortium.

Titanium Compass is a joint venture comprising four companies: Ancom’s indirect wholly-owned Puncak Berlian Sdn Bhd, VGI, Ikatan Asli Sdn Bhd and Utusan Melayu (M) Bhd’s wholly-owned Utusan Airtime Sdn Bhd.

“The MRT concessions are the short term and immediate shot in the arm that the Redberry Group needs,” Wong says, adding that revenue from these infrastructure contracts could contribute as much as RM30 million per year to the group.

“I expect FY2017 (financial year ended May 31, 2017) to be a good year as I expect the MRT to contribute from the start.”

The media division of Ancom posted a segmental loss of RM16 million in FY2016 compared to a segmental profit of RM7.5 million in FY2015.

Wong says the loss was due to the sudden withdrawal of a client from its airport segment.

“It was a huge blow but over the past four months, we have been able to turn it around by getting two major clients to take up the aerobridges vacated by the previous client. We have more than recovered from that loss. The revenue from the latest two clients was more than RM20 million, thus overcoming that sudden loss,” he reveals.

“To ensure we are not caught out again, we have got these new clients to sign multiyear deals. This will stabilise the books.”

Ancom’s media business — Redberry — is in the OOH advertising segment through Redberry Outdoors Sdn Bhd and its 75%-owned Meru Utama Sdn Bhd, which owns the exclusive rights to advertising mediums in Kuala Lumpur International Airport, klia2 and Senai airport. It is in the transit media business through its advertising sales concession for Rapid buses in Kuala Lumpur, Penang and Kuantan.

Meanwhile, Big Tree’s transit advertising business covers the LRT under Rapid KL, the Express Rail Link connecting KLIA and Kuala Lumpur Sentral as well as the KL Monorail.

The outdoor advertising business of Media Prima saw its earnings rise 6% year on year to RM36.6 million in FY2015, making up 26.3% of the media group’s segment profit after tax and before allocation to non-controlling interest of RM138.7 million. Revenue from that segment grew 6.2% year on year to RM157.2 million, driven by new digital rollouts at key and premium sites throughout FY2015.

Dividends received and receivable net of tax from Big Tree for FY2015 was RM30 million — 50% higher than the RM20 million in FY2014.

“We do not have a dividend policy … it really depends on the cash requirements of the company. Moving forward, with all these new projects, our capex (capital expenditure) will increase to probably about another RM30 million in a year. We are in a net cash position and do not have any corporate exercise plans in the future to call for more cash,” says Cheah.

“I don’t discount the fact that we may buy another local company but we are not in talks at the present moment for a local acquisition. We explored [an acquisition] last year but it didn’t take off,” he adds.

Meanwhile, Redberry’s Wong shares that the company is “looking at various options for corporate exercises”. “But let us get the MRT going first before we go there. If the numbers go according to plan, such an exercise could happen sooner,” he says.

“Our total order book for the year is more than RM100 million … But this is not good enough as our total assets are worth about RM400 million but there are some sites that historically has been unsaleable.

“We are coming up with a new marketing strategy to increase our sales by leveraging our wide variety of assets. We are also negotiating another major sale at the airport,” he adds.

Media analysts say the outdoor advertising business is a lucrative one as the concessions are “chunky”, and for long periods of time.

“Players can lock in contracts for a longer term. The margins for outdoor advertising can be between 30% and 40% … but it also depends on the site rental cost that takes up a chunk of the total cost. The margins could be lower if that cost is higher. The downside is when a major client pulls out, and it can be quite cumbersome and time-consuming dealing with the local town council,” says a media analyst with a bank-backed research house. 

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

      Print
      Text Size
      Share