KUALA LUMPUR (March 5): Kenanga Research has maintained its “underweight” rating on the media sector and said fourth quarter of calendar year 2023 (4QCY2023) results came in mostly below house's full-year forecasts (three out of four) due to weak advertising expenditure (adex), lower subscription revenues, and high overheads.
In a sector note on Tuesday, the research house said year-on-year weakness in 4QCY2023 adex was prevalent for media companies under its coverage.
Additionally, it said pay-TV subscription revenues sustained their quarterly routs amid subscriber churn.
“We maintain our 'underweight' stance as we wait for traditional media players to adapt and compete effectively within the new landscape that is dominated by digital media.
“We do not have any stock picks for the sector,” it said.
Earnings weakness will likely prevail
Kenanga believes it is challenging for traditional media (i.e. TV, radio and newspapers) to regain adex share lost to contemporary media.
It said this reflects the structural trend where interest is shifting into: (i) streaming apps or websites (e.g. Youtube, Spotify, Apple Music), (ii) mobile apps (e.g. Waze, Grab, CamScanner), and (iii) social media platforms (e.g. celebrity influencers, Instagram, TikTok, Facebook, X). Evidently, over the past three years, digital media’s adex share has progressively inched up from 15.7% in 4QCY2020 to 23.5% in 4QCY2023.
“Whilst this had led to top-line contraction for traditional media entities, the corresponding reduction to their fixed cost base has been comparatively slower.
“As such, this lag in cost adjustment has culminated in a more pronounced and steeper decline in bottom line,” it said.