KUALA LUMPUR (May 26): RAM Rating Services Bhd has maintained a stable outlook on the Malaysian media sector this year.

RAM said this is underscored by the sector's sustained importance to advertisers and buoyed by the growth of Internet advertising expenditure (adex) as well as the widening array of online advertising platforms, albeit with a marginal drop in expected adex.

"The credit profiles of RAM-rated media players remain supported by their strong balance sheets and solid cashflow-generation, despite the restraint in adex amid the slowing economy and the structural shift away from the traditional media segment," the rating agency said in a statement today.

The three media companies under RAM's coverage are Star Media Group Bhd, Media Prima Bhd and Media Chinese International Ltd; all of them carry AA1/stable long-term ratings.

According to RAM's estimates, overall real adex (television and newspaper) contracted 7% year-on-year (y-o-y) in 2015, because advertisers were holding back on adex amid muted consumer sentiment after the implementation of the goods and services tax and weaker earnings against the decelerating economy.

RAM said the contraction in adex was largely driven by a decline in the newspaper and free-to-air TV segments.

Moving forward, the agency expects adex to continue facing challenges this year given the persistent weakness in consumer sentiment.

Nevertheless, it said some upside may stem from major sporting events in the second half of the year, such as UEFA Euro 2016 and the Rio 2016 Olympics.

"Despite factoring in some recovery, we expect real adex to remain pressured, with a 3%–5% decline," said RAM's Consumer and Industrial Ratings head Kevin Lim.

"Additionally, the broadening range of popular on-demand entertainment platforms such as iflix, Netflix and Spotify together with the growing popularity of social media platforms (Facebook, Instagram, Twitter) may further dilute the viewership, readership and listenership of the traditional media platforms," he said.

In line with the shift in consumer preferences in favour of cyberspace, RAM said it envisages Internet adex to continue expanding as advertisers gravitate away from traditional adex platforms.

This will be supported by the increasing domestic Internet penetration rate, which shows a compounded annual growth rate of 5.4% for the last five years, reaching 72.2% as at end-June 2015, it added.

That said, RAM noted that traditional media platforms still dominate mass-audience-focused advertisements given their entrenched positions as the most viewed, read and accessible content medium.

Traditional media platforms also command about 90% of overall adex; this translates into healthy earnings for the big media players in Malaysia, said the agency.

Given the cost-cutting strategies adopted by the three media companies under its coverage, RAM said they even managed to improve their earnings despite softer adex in fiscal 2015.

"Their ratings remain supported by their sturdy balance sheets and still-robust cashflow-protection metrics," it added.