1HCY23 advertising expenditure (adex) of RM3.1b came in below Kenanga Research (Kenanga) full-year adex growth assumption of 1.5% YoY. The disappointment was mainly due to higher-than-expected adex contraction at the newspapers segment.
“Nevertheless, YTD decline was moderated by sequential pick-up across the board in 2QCY23,” said Kenanga in the recent Sector Update Report.
Kenanga believe this was largely attributed to ad-friendly events in 2QCY23 such as:
(i) Final matches for UEFA Champions League and NBA.
(ii) Hari Raya Aidilfitri festivities.
In comparison, there were no major sporting tournaments in 1QCY23, although Chinese New Year festivities provided a slight boost. The YoY contraction in 1HCY23 adex reflects lingering weakness in
consumer sentiment.
This is on the back of heightened inflation and a weak USD/RM that erodes purchasing power. In particular, lower adex was mainly attributed to the newspapers segment that fell short of Kenanga’s full year assumption of a 1% contraction.
This was following steep declines at Harian Metro (-42% YoY), New Straits Times (-20% YoY) and Star (-11% YoY). Additionally, to a smaller extent, 1HCY23 decline was exacerbated by contractions in the TV (-0.5%) and radio (-2%) segments.
This is consistent with current industry trends where advertisers sideline traditional media in favour of digital channels. Moreover, Kenanga believes FTA TV faces intense competition from OTT streaming services such as Netflix and Disney Hotstar.
On the bright side, higher 1HCY23 adex spend in the cinema (+23%) and digital (+2%) segments partially cushioned the YTD decline. Nevertheless, the digital segment continued its market share expansion by snagging 21.5% share (1HCY22: 20.6%) at the expense of newspapers.
On the back of this, the market share of newspapers has now shrunk to 13.7% in 1HCY23 versus 16.1% a year ago. This translates to almost half of its market share of 26.6% back in 1QCY20.
“We attribute this to advertisers’ concerns that newspaper circulation has dwindled following price increases. Recall that market leader, The Star, raised prices of its physical copies by 50% in April 2023. However, prices for Star’s digital newspaper remain status quo.
Moving forward, Kenanga expects 3QCY23 adex to be seasonally softer due to the lack of major festivities and sports events. Moreover, advertisers will likely hold back as they gear up for the year-end holiday season.
Kenanga believes that advertisers will remain cautious on marketing spend. This is given the lingering risk of recession due to a sluggish Chinese economy and stubbornly high US inflation. Furthermore, consumer spending has now normalised following revenge spending in CY21 caused by pent-up demand during the pandemic.
In the immediate to medium term, Kenanga expects adex spend to remain subdued as macroeconomic headwinds persist. This is underpinned by:
(i) Sustained weak economic data from China.
(ii) The US Federal Reserve alluded to two more interest rate hikes for the remainder of this year.
Meanwhile, closer to home, sentiment and discretionary spending is dragged by the government’s ongoing subsidy rationalisation measures and planned implementation of targeted fuel subsidies.
Nevertheless, the silver lining lies in the digital segment’s robust growth trajectory. Hence, media players may leverage on this by accelerating efforts to digitise their content.
Kenanga’s sole Outperform call in the sector is The Star given:
(i) Its proactive plans to future proof its earnings via a 5-year transformation journey.
(ii) Strong balance sheet with valuable landbank for potential development.
(iii) Traction in efforts to transition to digital media.
Moreover, Kenanga believes the emergence of Tan Sri Tong Kooi Ong as a substantial shareholder will contribute significantly to the following catalysts:
(i) Enhanced corporate governance and best practices by management.
(ii) Deployment of The Star’s sizable war chest for accretive M&As, divestitures or ventures.
