Dismal adex performance in 2012

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Media sector

Maintain neutral. December advertising expenditure (adex) growth (excluding pay TV) was decent at 3.5% year-on-year (y-o-y) and 7.3% quarter-on-quarter (q-o-q), largely contributed by higher adex for free-to-air (FTA) TV.

However, overall adex growth for 2012 was weak at 1.6%. We believe this will continue in 2013 given the absence of major adex-friendly events, the ongoing eurozone debt crisis, and the cautious mood among advertisers. Maintain “neutral” as the sector still lacks rerating catalysts.

We have a sole “buy” call on Media Chinese International Ltd (MCIL) with a target price of RM1.43 due to its cheap valuation relative to peers and calendar year 2013 price-earnings ratio of 9.5 times against 11 times for peers. We remain “neutral” on Media Prima Bhd with a target price of RM2.52 and Star Publications (M) Bhd with a target price of RM2.74.

Total adex growth (excluding pay TV) for December was decent at 3.5% y-o-y, mainly contributed by higher adex for FTA TV, up 13.1% y-o-y. However, adex for newspapers was slightly disappointing with a y-o-y decline of 3.6%.

On a q-o-q basis, overall adex growth accelerated by 7.3% in December, which was equally contributed by the increase in adex for FTA TV, up 7.3% q-o-q, and newspaper, up 6.9% q-o-q. Unsurprisingly, December was the strongest month for adex in the year due to advertisers exhausting their budget as well as the usual boosts from year-end festive seasons.

As expected, overall adex growth in 2012 was weak at 1.6%, below our already conservative forecast of 2.9%. Previously, we had revised our adex growth forecast for the industry from 3.5% to 2.9% after the cut in adex growth assumptions for Star in its third quarter financial year 2012 results.

Adex growth in 2012 was clearly dragged down by weak adex performance in the newspaper segment, which saw a decline of 1.2% y-o-y (as opposed to strong growth of 11.9% in 2011). We understand adex growth for Bahasa Malaysia and Chinese language newspapers were relatively flat, while English language newspapers suffered a decline.

The 5.2% adex growth for FTA TV was within our expectations (we have assumed 5% growth for Media Prima), although it should have been much stronger given two major adex-friendly events during the year, the FIFA Euro 2012 football tournament and the Olympic Games.

We are not optimistic on the adex outlook for 2013, with growth likely to be tepid and come in again in the low single digits of about 2% to 3% in the absence of major adex-friendly events. We also do not expect advertising spending by global multinationals to come back in a big way to Malaysia due to the eurozone debt crisis, despite the country’s decent economic growth that is expected to be supported by Economic Transformation Programme-driven investments.

Feedback from corporates has indicated that the upcoming general election has somewhat affected adex growth, judging from the cautious mood among advertisers. We believe it is still early days to tell whether adex will improve after the election is concluded. — Alliance Research, Jan 22


This article first appeared in The Edge Financial Daily, on Jan 23, 2013.


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