The earnings delivery (versus our expectations) of media companies under our coverage improved sequentially in 2QCY24. There was broad-based decline in YoY adex for all players, while the sequential rout in Pay-TV subscribers sustained. We maintain our CY24F adex growth estimate of 10.8% YoY, with the expansion mainly emanating from the FTA TV and digital media segments. However, we believe traditional media (ex- FTA TV) may struggle to fully capitalize on the adex rebound given intense competition from new media platforms. Furthermore, adex recovery may face challenges as major brands are impacted by recent mass consumer boycotts. We maintain our UNDERWEIGHT stance as newspapers continue to lose adex share, and as legacy costs exacerbate revenue pressure for traditional media players. Our only sector stock pick is MEDIA (OP; TP: RM0.51).

Outperformance due to cost beat and property sales. The earnings delivery (versus our expectations) of media companies under our coverage improved sequentially in 2QCY24, with 75%, 0%, and 25% beating, meeting and missing our projections, compared with 25%, 25% and 50%, respectively, three months ago (Exhibit 1). ASTRO (UP, TP: RM0.25) underperformed due to continued pay-TV subscriber rout, ARPU pressure, weaker adex and high operating leverage. Meanwhile, the outperformers consist of: (i) STAR (MP; TP: RM0.456) as progress billings from the Star Business Hub project soared, (ii) MEDIA as opex dipped, likely due to the termination of a long-term advertising agreement with a partner at the Out-of-Home segment, and (iii) MEDIAC(UP; TP: RM0.11) on the back of better-than-expected opex savings and lower depreciation following completion of asset write-offs and cost optimization measures in 2HFY24.

Cord-cutting trends prevail. In 1QFY25, ASTRO’s sustained its pay-TV subscriber base rout with QoQ churn of 149k to 5.3m customers. This represents consecutive sequential decline since the recent peak of its subscriber base at 5.7min 2QFY21. We attribute the weakness to intense competition from: (i) unauthorized TV boxes, and (ii) over-the-top (OTT) platforms (e.g. Netflix, Disney+ Hotstar). Furthermore, Netflix is ramping up its vernacular programming in major Asian languages (including Malay, Tamil, Mandarin), while unauthorized downloads of content over the internet remains rampant. Additionally, younger audiences are leaning towards digital platforms (i.e. social media, mobile apps, websites, and video streaming) for news and entertainment contents.

On a less discouraging note, ASTRO’s sequential ARPU contraction in 1QFY25 was relatively mild (-30 sen) despite the introduction of affordable entry level plans with prices starting from RM42 per month. We believe this was due to the sustained popularity of bundled ASTRO fiber offerings, which saw a 15% YoY increase in subscribers in 1QFY25.

Adex receipts were all down.1HCY24 actual adex receipts declined across the board, at: (i) ASTRO (-12% YoY), MEDIA (- 2% YoY), and (iii) MEDIAC (-3% YoY). While STAR does not disclose its adex receipts, Nielson data indicates that 1HCY24 adex for The Star newspaper slipped by 4.6% YoY. We believe Nielson’s data is useful for understanding broader adex trends, as it likely reflects board rates, but it may not account for discounts. Consequently, there may be deviations between actual adex receipts reported by media companies and Nielsen's data. For instance, while MEDIA’s actual adex contracted by 2% YoY in 1HCY24, Nielson reported a 4.7% YoY expansion for MEDIA’s major newspapers and TV channels. The discrepancy may be partly attributed to Omnia’s campaign solutions, which encompass both above and below the-line advertising. On the other hand, Nielsen data shows that total adex for major Chinese-language newspapers published by MEDIAC in Malaysia declined by 5.7% YoY in 1HCY24, which more closely approximates the actual decline of 2.6% YoY.

Adex not out of the woods yet. Using Nielson data (excluding Pay-TV adex) as a benchmark, we maintain our CY24F adex growth estimate of 10.8% YoY, following a sluggish CY23 (+1.7% YoY), and as we anticipate a modest 9% growth from prepandemic levels in 2019. However, the post-pandemic recovery is limited to certain segments, particularly free-to-air TV, which is expected to surpass CY19 levels by 59%. On the other hand, newspaper adex in CY24 is anticipated to reach only 49% of pre-pandemic levels, and radex (radio adex) to exceed by 5%.

Therefore, we believe traditional media (ex-FTA TV) may struggle to fully capitalize on the adex rebound given intense competition from new media. Digital platforms are increasingly attracting both audiences and advertisers, driven by: (i) a structural shift towards short video formats and live-stream sales, (ii) the application of AI to curate personalized content and ads, (iii) relatively lower cost per impression, and (iv) interactive digital platforms that enable two-way communication and user engagement.

Adex drag from mass boycotts of major brands too. We expect adex will face continued headwinds as major advertisers are impacted by recent consumer boycotts of their brands. To recap, since the start of ongoing Gaza conflict, some major international brands in Malaysia ranging from food and beverage to fashion retail are still experiencing setbacks due to perception, albeit there is a silver lining that such boycotts are easing gradually. Consequently, we believe these companies have cut their marketing budgets to cope with revenue erosion and weakened sentiment. Moving forward, as the conflict persists, we do not discount the possibility of a protracted shift in consumers’ preference toward local alternative brands, as highlighted by the Domestic Trade and Cost of Living Ministry. Hence, this may diminish adex spend and hinder its recovery.

Mixed indicators allude to sustained headwinds. The Malaysian Institute of Economic Research (MIER) Consumer Sentiment Index (CSI) declined by 2.3 pts QoQ to 87.1 in 1QCY24, primarily due to lingering concerns about inflation, employment prospects and personal finances. Moreover, we believe that consumers’ inclination to spend had also diminished following the recent increase in Sales and Services Tax (SST) to 8% for several sectors (eg. finance and leisure). Looking ahead, we opine that sentiment will be weighed by concerns over impending fuel subsidy rationalization following the recent removal of diesel subsidies.

On the other hand, MIER’s Business Conditions Index (BCI) sustained its upwards momentum, rising by 5.3 pts QoQ to 94.3 in 1QCY24. This was propelled by higher sales, especially domestic orders, which offset the decline in capital investments. Given the mixed signals, and as both indices remain below the 100-point optimism threshold, we believe Malaysian adex still faces challenges.

Print media not leveraged to recovery in FTA TV adex. We maintain our UNDERWEIGHT recommendation on the sector as newspaper publishers have limited exposure to the recovery in FTA TV adex. Hence, they will likely struggle to breakeven as they continue to lose adex market share, which had declined to 12.2% in 2QCY24. This represents its lowest level based on our data dating back to 1QCY16 when newspapers held 52.5% market share. Additionally, on top of revenue pressure, traditional media companies are burdened by legacy assets such as expansive corporate headquarters, costly printing plants, and a bloated staff force. Our sole stock pick in the sector is MEDIA.

Source: Kenanga Research - 6 Sept 2024