Traditional media players are burdened by both revenue headwinds and legacy costs due to large corporate headquarters, costly printing facilities and oversized workforce, while smaller media players are struggling to achieve profitability, and segments within larger firms continue to alternate between quarterly profits and losses, according to a research note published by Kenanga Investment Bank Bhd (Kenanga Research) on Dec 13.
Kenanga Research has maintained the UNDERWEIGHT call without any stock picks for the sector, and has lowered the media sector to MARKET PERFORM.
According to market analysts, there was a broad-based decline in actual adex (advertising expenditure) receipts of 6%−15% year-on-year (YoY) in the first nine months of 2024, likely attributed to heated competition and inflationary pressures impacting consumer sentiment.
Analysts have maintained their 2024 adex growth assumption of 1.6% YoY against 1.8% YoY last year, mainly driven by free-to-air (FTA) TV. Its growth is expected to more than offset the dip in digital adex, possibly dragged by heated competition with social media and key opinion leaders (KOL). Nevertheless, FTA TV may also struggle to capitalise on increased adex as intense competition leads to rate discounts as reflected in weaker revenues.
In the first nine months of this year (9MCY24), there was a broad-based decline in actual adex receipts at Astro Malaysia Holdings Bhd (10MCY24: -16% YoY), Media Prima Bhd (-4% YoY), and Media Chinese International Bhd (-6% YoY). In the case of Star Media Group, while it does not disclose its adex receipts, Nielson data indicated a 4% YoY decline in 9MCY24 adex for the group’s daily newspaper publication. This is partially due to acute competition and subdued consumer sentiment, as inflationary pressures continue to weigh on spending habits.
Bright spots were earnings boost from new property sales and travel offerings. The earnings delivery (versus expectation) of media companies under review deteriorated sequentially in Q3 of 2024, with 50% exceeding expectation, 0% meeting expectation, and 50% missing expection, compared to 75% exceeding, 0% meeting and 25% missing reported three months ago.
Companies that disappointed include Astro and Media Prima as costs remained stubbornly escalated, while top line was weighed by weaker adex and subscriber base (for Astro). Conversely, media players that outperformed are Star Media Group, propelled by increased unit sales and steady progress billings from its property development project, and Media Chinese International boosted by new offerings for its premium CEO-led luxury tour coupled with lower costs (for newsprint and depreciation).
Heading into the last quarter of the current year, a sequential uptick in the last months is expected, as consumers are likely to engage in higher spending due to the upcoming holiday season during the year-end school break, Christmas, and New Year’s celebration.
This period presents a prime opportunity for advertisers to ramp up their marketing spend to capture the festive demand, especially after holding back during the earlier part of the year.
