Kenanga Research maintains its “NEUTRAL” stance on the media sector as media companies now have a leaner cost structure following the implementation of restructuring measures and cost optimisation in recent years.
The research house projection for advertising expenditure (adex) in 2023 remains at a 2.2% contraction, following a robust 8.6% growth in 2022.
The projection is based on the belief that advertisers will remain cautious in their marketing spending due to sustained inflationary pressures and a sluggish economic outlook.
According to data by the Malaysian Institute of Economic Research (MIER, adex for the first half of 2023 contracted by 2.4% year-on-year to RM3.1 billion.
This decline was particularly pronounced in newspapers (-17% year-on-year or YoY), television (-0.5% YoY), and radio (-2% YoY).
Furthermore, the decline in adex was exacerbated by a high comparison base in 2022, which saw a surge in spending due to pent-up demand during the pandemic.
Recent adex data confirms the ongoing industry shift, with advertisers increasingly favouring digital channels over traditional media.
Notably, in the second quarter of 2023 (2Q’23), digital media further increased its market share to 22%, up from 21.5% in the same period a year ago, at the expense of newspapers.
Consequently, newspapers’ share of adex has dwindled to 13.8% in 2Q’23, compared to 16.8% in the previous year, marking almost a 50% decline from its market share of 26.6% in the first quarter of 2020.
Regrettably, digital newspaper websites have been unable to recapture this lost market share, as evidenced by youtube.com‘s significant share of 88% in the digital adex space.
Consequently, the outlook for newspaper publishers remains bleak, given the prevailing structural trend where consumers increasingly gravitate towards digital platforms such as social media, apps, and websites.
Meanwhile, the research house anticipates that the cord-cutting trend will persist within the Pay TV sector, driven by two significant challenges, fierce competition from over-the-top ****(****OTT) streaming platforms like Netflix and Disney Hotstar and subscriber attrition as consumers scale back their spending in response to rising living expenses.
Furthermore, the government’s ongoing subsidy rationalisation efforts and the impending introduction of targeted fuel subsidies are expected to put additional pressure on disposable incomes.
This is likely to have a notable impact on Pay TV subscribers, particularly within the M40 and T20 segments, which represent the majority of the Pay TV customer base.
On a positive note, media companies have significantly streamlined their cost structures through recent restructuring efforts and cost optimisation measures.
In addition, with the exception of Astro Malaysia Holdings, rated as Market Perform with a Target Price (TP) of RM0.56, most media players are currently in a favourable net cash position.
This financial strength provides them with ample resources for potential acquisitions to transform and adapt their business models.
The research firm anticipates a seasonally stronger adex in the fourth quarter of 2023, driven by increased product advertising during year-end festivities.
Its top pick within the sector is Star Media Group Bhd with an “Outperform” rating and a TP of RM0.54.
