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This article first appeared in The Edge Financial Daily on July 22, 2019

Media sector
Maintain neutral:
Nielsen has recently introduced digital adex (advertising expenditure) — not accounting for mobile in-app spend, social media and search engine spends — as a component to the total gross adex, which appears to account for 13% of the overall market. However, the overall industry continues to be in a lull in the second quarter of 2019 (2Q19), which declined by 16% year-on-year (y-o-y) and 15% year-to-date (YTD) when excluding digital adex, which has only been tracked since January 2019. The drag came from the usual suspects — free-to-air (FTA) television (TV) (-18%), newspapers (-18%), radio (-12%) and magazines (-16%) — stemmed by the persistent digitalisation of advertising mediums in addition to a growing customer preference for interactive content.

Meanwhile, expenditures for cinema and in-store media increased by 10% and 12% respectively, but they collectively accounted for only 5% of the market. As traditional adex still outweighed digital adex, we believe that players under our coverage might not see significant earnings improvement from the digital space despite their strategies and investments to boost their online presence. On the flipside, this could be a double whammy given the diminishing relevance of traditional adex to advertisers.

Quarter-on-quarter (q-o-q), total gross adex increased by 13% to RM1.52 billion. This is typically the case as 2Q is seasonally stronger due to Hari Raya celebrations driving better pick-up rates in all traditional media segments such as FTA TV (+20%), newspapers (+7%) and radio (+15%) during 2Q19. Having said that, we expect 3Q to be weaker given: i) the lack of major sporting events; ii) weak consumer sentiment; and iii) continual digital disruptions.

Overall, we gathered that media players (excluding Astro Malaysia Holdings Bhd) are garnering and streamlining their efforts to ride the digital trend, given the continual challenging outlook. With Star Media Group Bhd introducing its digital ecosystem, involving the use of  artificial intelligence) to capture and target audience needs according to individual consumption habits, potentially garnering better cross-selling opportunities based on its many existing platforms (Star Online, Star Property and Dimsum).

Meanwhile, Media Chinese International Ltd is seeing traction in its one-stop solutions to advertisers, which includes content creation, editing services and talents for promotional materials. In comparison, we believe Media Prima Bhd remains the leader in terms of digital initiatives among the players (excluding Astro), with its Odyssey Transformation strategy as the group has already acquired multiple digital brands while brewing its own. Overall, we commend the media players in embracing the digitalisation process, while leveraging on key expertise, which includes journalism and content creation. However, we believe the bottom has yet to be seen given that traditional media still forms the lion’s share of the group’s contribution.

The sector’s prospects remain challenging amid the soft adex outlook while the digital trend continues to reshape the media industry. Advertisers continue to switch from traditional media type (such as TV and print) given the growing penetration rate in both broadband and mobile cellular segments. Our sole “outperform” is Astro (target price [TP]: RM2) given its high dividend yield (more than 7%) and cheap valuation (forward financial year 2020 price-earnings ratio of 11 times versus our media coverage of 15 times). Our “underperform” call on Media Prima (TP: 26 sen), Star Media (TP: 60 sen) and Media Chinese (TP: 16.5 sen) are maintained, given the uninspiring outlook for the traditional adex space. — Kenanga Research, July 19

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