Maintain neutral sector view
The challenging market climate has affected all print media companies. Weakness continues to be seen in the print segment, largely due to the lack of a “feel good” factor in ad spending. Fortunately, newsprint prices have remained at attractive levels, at US$575 (RM1,978)-US$585/MT in the first 10 months of 2014 (10M14).
The challenging market climate has affected all print media companies, as seen in their recent results (which were largely within our expectations). TMCIL Multimedia Sdn Bhd, Star and Media Prima saw their respective third-quarter financial year ending 2014 (3QFY14) print-segment revenue decline year-on-year (y-o-y) by 3% to RM292million, 11% to RM170million and 17% to RM149million respectively. This was underpinned by advertisers cutting ad spending due to the MH17 airplane incident, weak consumer demand due to a slower retail environment and a continuing shift in advertising revenue to broadcast and the Internet from print.
In 3Q14, the Malaysian Institute of Economic Research reported weaker consumer confidence in Malaysia, with the index at 98 points vs 102 points in 3Q13. This indicates pessimism among consumers. We expect Malaysian consumers and the business sentiment to remain sombre, with the impending implementation of a goods and services tax (GST) in April 2015, coupled with a lack of mega events planned for 2015 to stimulate consumption.
The good news for print media firms is that newsprint prices remained at attractive levels. We do not foresee a sharp decline in newsprint prices because some suppliers may start to operate at a loss.
We are cautious about the media sector as we think weak business and consumer sentiment, coupled with the implementation of GST, could affect advertising revenue. Besides, an increase in online reading could adversely affect demand for print media.
In view of limited rerating catalysts, we remain neutral on the media sector. Our preference for sector exposure is Astro (target price RM3.70) for its resilient business model and potential to raise average revenue per user by offering more HDTV content.
Key downside risks to our call on the media sector are much lower-than-expected advertising revenue, a sharp drop in hard copy newspaper circulation and a sudden spike in newsprint prices. — AffinHwang Capital, Dec 3
This article first appeared in The Edge Financial Daily, on December 4, 2014.