We maintain our UNDERWEIGHT recommendation on the sector, as traditional newspaper publishers face earnings headwinds due to shrinking adex share and high legacy costs. Our CY24F adex growth estimate of 10.8% YoY is mainly driven by free-to-air TV (FTA TV) and digital media. Therefore, traditional media is unlikely to benefit from the adex rebound, given intense competition from new media, and the ongoing evolution of AI technology. Our only sector stock pick is MEDIA (OP; TP: RM0.51).

Expect recovery in adex driven by FTA TV. We maintain our CY24F adex growth estimate of 10.8% YoY, which is mainly driven by free-to-air TV (FTA TV) (+10% YoY) and digital media (+20% YoY). The post-pandemic recovery in adex is limited to certain segments, particularly FTA 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-Covid levels, and radex (radio adex) to exceed by 5%.

With the exception of FTA TV, we believe traditional media is unable to 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 merchandise sales, (ii) the application of artificial intelligence (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. As such, we expect brands and retailers continuing to spend on digital advertising to direct traffic to their respective online shopping sites.

Mass boycotts of major brands may drag adex. Moreover, we are concerned that adex may be impacted by recent consumer boycotts of major international brands. The ongoing Gaza conflict has weakened the perception of several international brands in Malaysia, ranging from food and beverage to fashion retail. Consequently, these companies have cut their marketing budgets to partially mitigate revenue erosion. Looking ahead, if the conflict persists, there is a possibility of a sustained shift in consumer preference toward local brands, as highlighted by the Domestic Trade and Cost of Living Ministry. Hence, this may dampen adex spend and delay its recovery. On a positive note, these boycotts have been gradually easing since the start of the conflict in Oct 2023.

Expect Pay TV subscriber rout to sustain. In the Pay-TV space, we believe subscriber churn will likely sustain in the near-to-medium term as the following trends prevail; (i) proliferation of unauthorized TV boxes, and (ii) shift of viewership to 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 remain rampant. Additionally, younger audiences are leaning towards digital platforms (i.e. social media, mobile apps, websites, and video streaming) for news and entertainment content. Evidently, ASTRO’s (UP; TP: RM0.23) subscriber base has been on consecutive QoQ decline since its recent peak in 2QFY21.

Some bright spots to cushion bottomline. On a more optimistic note, we expect pay-TV ARPU to remain resilient, although there may be slight pressure from the introduction of ASTRO’s affordable entry-level plans starting at RM42 per month. However, the strong demand for ASTRO's convergence offerings will likely offset ARPU drag from these lower-priced plans. Additionally, we believe that print publishers and ASTRO will benefit to a certain degree from a stronger MYR versus USD on the back of lower costs for newsprint and licensed content respectively.

We maintain our UNDERWEIGHT recommendation on the sector as newspaper publishers continue to lose adex market share, which declined to just 12.2% in 2QCY24. This represents its lowest level based on our data which dates back to 1QCY16 when newspapers held 52.5% market share. Hence, traditional publishers will likely struggle to break even, as revenue pressures coupled with high legacy costs weigh on their bottomline. Unlike new digital startups with lean cost structures, traditional players are burdened by legacy assets such as large corporate headquarters, costly printing plants, and anoverstaffed workforce. Our sole stock pick in the sector is MEDIA.

We like MEDIA on account of: (i) its entrenched market leadership in the TV, OOH and radio segments, (ii) its position as the leading digital publisher in Malaysia with 9.1m monthly total unique visitors on multi-platforms, and (iii) its dominant market share of 54% in the Malaysian TV space with leading overall audience share of 60% (Chinese) and 47% (Malay).

Source: Kenanga Research - 3 Oct 2024