Media - 4QCY20 Adex Review: More Screen Time

Date: 20/01/2021

Source  :  KENANGA
Stock  :  MEDIA       Price Target  :  0.15      |      Price Call  :  SELL
        Last Price  :  0.505      |      Upside/Downside  :  -0.355 (70.30%)
Source  :  KENANGA
Stock  :  MEDIAC       Price Target  :  0.15      |      Price Call  :  SELL
        Last Price  :  0.185      |      Upside/Downside  :  -0.035 (18.92%)
Source  :  KENANGA
Stock  :  STAR       Price Target  :  0.28      |      Price Call  :  SELL
        Last Price  :  0.38      |      Upside/Downside  :  -0.10 (26.32%)
Source  :  KENANGA
Stock  :  ASTRO       Price Target  :  0.83      |      Price Call  :  HOLD
        Last Price  :  1.13      |      Upside/Downside  :  -0.30 (26.55%)

Nielsen’s 4QCY20 gross adex report showed meaningful recovery at hand on easing movement restrictions and a livelier economic landscape, though this did not help overall 12MCY20 to pickup the drag in 2QCY20 due to the first MCO. Lifted by traditional year-end seasonality, the quarter still fell short by 9% against 4QCY19 despite being bolstered by new DTT channels included in Nielsen’s TV readings. With the rise in Covid-19 cases and the resumption of MCO measures, there is a risk that economic activity could be subdued for prolonged periods given the likelihood of extensions. Meanwhile, cinemas could be heading for obscurity with several closures by key players. Digital media remains steadfast in taking adex share from traditional platforms, being the preferred option when consumers are still homebound, especially more so now. Given the downside risk attached to the sector, we maintain our UNDERWEIGHT call with UNDERPERFORM call for most of our coverages. ASTRO is the sole MARKET PERFORM with a dividend proposition of c.7% yield.

Still more to chip off. Based on Nielsen’s 12MCY20 statistic, total gross adex clocked in at RM5.01b (- 15% YoY). The decline rippled nearly across the board for traditional media platforms except for FTA TV which saw a meagre rise (+1%). However, this was mainly lifted by new DTT channels which added c.RM210m to the segment, which would otherwise indicate a 7% decline from mainstream channels. Newspapers (-42%) have not recovered from the impact of movement restriction choking physical distributions (particularly in 2QCY20) while cinemas (-75%) were at the mercy of social distancing procedures and being forced to pause operations. Meanwhile, radio adex (-26%), magazines (-37%) and in-store media (-35%) were victims of softer advertiser appetite, in line with lower consumer spending and economic activity. On the flipside, digital adex continued to rise steadily (+19%).

QoQ, 4QCY20 total gross adex resumed its recovery, sequentially (+19%, ex-digital: +20%), thanks to year-end seasonality which is typically seen during the period. That said, we believe that businesses and consumers were less excited this time around as Covid-19 concerns remained prevalent coupled with social distancing being a discouragement for outdoor activities and loss of income. For the period, FTA TV propelled the quarter’s performance (+36%) as advertisers capitalised on larger seasonal viewership. The newspaper medium declined (- 4%) possibly as publishers pushed for a more digital presence to maintain their relevance in the market. Digital media remained steadfast with a 10% growth as one of the more accessible and effective mediums of outreach to consumers.

(Due to complications stirred by the MCO, Nielsen represented that certain print channels (albeit non-market leaders) were unable to provide adex readings and data for them to derive a like comparison against previous quarters. That said, we believe the current data paints a plausible and sufficient picture of the current advertising landscape supported by our industry checks and anecdotal evidence).

Outlook. We previously highlighted that to undergo another full MCO could be detrimental to the advertising space. We stand by this view especially with businesses having to balance between suppressed consumer spending and meeting barebones commitments. With homebound arrangements likely to peak again, consumers are likely to return to previous digital-centric commerce for convenience and also due to logistical circumstances. Players that have learnt from past year’s experiences and adopted strong digital strategies could fare better this time around in reaching out to consumers could appear as a viable option to advertisers. Especially at this juncture where advertising budgets are expected to be tight, value-for-money propositions could be greatly appreciated to give advertisers as much coverage as possible. At this instance, Media Prima’s integrated marketing service Omnia and Star’s data analytics know-how could see better days.

Maintain UNDERWEIGHT on the Media Sector. Industry headwinds will remain challenging, especially with an economy which is writhed with uncertainty and also sensitive to consumer spending appetite. At the same time, the growing predominance and necessity of digital channels will erode the adoption of traditional media channels in a slow but steady rate. Our calls for MEDIA (UP; TP: RM0.155), MEDIAC (UP; TP: RM0.150), and STAR (UP; TP: RM0.280) remain unchanged. As more threats could arise from the reinstatement of the MCO, we recommend investors to close their positions where possible. We believe ASTRO (MP; TP: RM0.830) is fairly priced at current levels but may still be of interest to yield-seeking investors with a potential yield of c.7%. However, we caution that chunky content costs could be seen in FY22 and FY23, arising from delayed major sporting events, barring further postponements or cancellations.

Source: Kenanga Research - 20 Jan 2021

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