3QCY20 gross adex numbers from Nielsen demonstrated a recovery from the return of economic activities, but still underperformed compared to the prior year. Lest another round of stricter movement controls is enforced, we do not anticipate ad spend numbers to come close to that of 2QCY20. That said, the Covid-19 induced MCO had worsened the dependence on traditional media platforms and accelerated the adoption of digital advertising. a trend that could only advance further. Corporates are moving to streamline their business and stepping up on the digital front to monetise their content and space. However, this might still pale in comparison to the digital heavyweights in the social media and video streaming platforms. To bring more value-for-money propositions, industry players offer more integrated advertising solutions and business development tools to keep customers sticky. We maintain UNDERWEIGHT on the sector as headwinds are likely to continue to persist. Our sole OP call is ASTRO (TP: RM0.830) with its television subscription model still being relevant and resilient. At current price points, dividend yields of c.8% could be expected.

Making up for lost time. Based on Nielsen’s 9MCY20 statistics, total gross adex amounted to RM3.53b (-18% YoY). Accounting for only traditional non-digital media channels, total gross adex came in at RM2.82b (-25%). The poorer numbers are no thanks mostly to 2QCY20 being strangled by movement control orders (MCO) and lockdowns amidst the Covid-19 pandemic. Notably, physical print distributions were parched by this and cinemas had to face temporary closures. On the flipside, television viewership was thought to increase, but also coinciding with higher online video content consumption. On a segmental basis, newspaper adex plunged by 43% whilst radio adex fell by 27%. Television adex only dipped slightly in comparison, by 6%. As expected, only digital adex showed improvement with a 26% growth based on Nielsen’s findings.

QoQ, 3QCY20 total gross adex rebounded by 33% (41% ex-Digital adex) against 2QCY20 as advertisers ramp up on lost marketing time and consumer engagement from the MCO. Mainstream platforms of television and newspapers saw a recovery on 24% and 61%, respectively. It also helped that the previously ceased Malay newspaper publications Utusan Malaysia and Kosmo! returned to the market in July 2020 after it was shut down in October 2019. Radio adex surged by 152%, possibly from advertisers capitalising on the return of on-road consumers. Interestingly, digital ads only saw a flattish increase of 3%. This could indicate that most advertisers still prefer traditional platforms to market to consumers and have mostly reserved their advertising budgets than spread them out to digital channels.

(Due to complications stirred by the MCO, Nielsen represented that certain print channels (albeit non-market leaders) were unable to provide adex readings and data for them to derive a like comparison against previous quarters. That said, we believe the current data paints a plausible and sufficient picture of the current advertising landscape supported by our industry checks and anecdotal evidence).

Outlook. At the opposite end of diminishing advertising revenues, corporates involved in the e-commerce/home-shopping space are enjoying better performance thanks to the same abovementioned greater digital adoption. We anticipate for this trend to sustain in the medium term as consumers whom were previously unexposed to the convenience of online shopping progressively adopt more tech-savvy habits. Riding this wave, we also anticipate corporates to make more proactive steps in enhancing user experience while introducing more offerings to make their respective platforms more relevant. That said, it is also unlikely that this segment could overwhelm the bread and butter advertising segment. Acknowledging the greater need for value-for-money solutions, integrated advertising services (Omnia from Media Prima, data analytics from Star) aim to provide greater value propositions to prospective advertisers to capture as wide an outreach as possible. However, we reckon that the implementation of another full MCO like in 2QCY20 could prove even more detrimental to the advertising space, not to mention that certain business sectors have yet to fully regain their footing since then.

Maintain UNDERWEIGHT on the Media sector. Despite the progressive recovery on the advertising industry, we believe media players will continue to experience challenges from the increasing adoption of digital media as a means for widespread advertising, being the most cost effective and efficient manner of consumer engagement. Though most have digital strategies in place, results might be lacking as they are mostly still at their infancy. Amidst the risk of eroding top-line, better cost savings measures are being exercised in attempt to sustain profitability. ASTRO (OP; TP: RM0.830) continues to be the preferred pick for the sector on the back of its high dividend yield (c.8%) and more resilient subscription-based model as opposed to other advertising-dependent players. That said, investors might remain cautious, reeling from a content cost glut which might surface in FY22/FY23 owing to the postponement of major sporting events to those years. Our individual stock calls; MEDIA (UP; TP: RM0.105), MEDIAC (UP; TP: RM0.145), and STAR (UP; TP: RM0.280) remain unchanged.

Source: Kenanga Research - 21 Oct 2020