Media sector remains flat due to weak adex

KUALA LUMPUR: The media sector incumbents’ report cards for the third quarter of financial year 2018 (3QFY18) remained uninspiring, mainly due to the prolonged weak advertising revenue as a result of subdued adex outlook on the slower economy and policies’ uncertainties.

This observation was made by researchers with Kenanga Investment Bank Bhd (Kenanga Research) as advertising revenue (adex) revenues have come in lower sequentially as advertisers remained cautious with their spending after the 14th General Elections (GE14).

“Media Chinese International Ltd’s (Media Chinese) report card, on the other hand, came in within expectations, mainly underpinned by its better-thanexpected travel segment,” it said in a note yesterday.

“Nevertheless, the group’s bread-and-butter publishing segment’s turnover continued to show weakness (similar to industry peers) sequentially in 3QCY18 coupled with slower travel seasons ahead, suggested that its outlook is getting more challenging.”

Astro Holdings Bhd (Astro) meanwhile reported a decent report card for 3Q19, lifted by a rebound in adex and higher contribution from its homeshopping segment.

Kenanga Research saw that revenue contribution from Astro’s home-shopping segment improved to 6.7 per cent in the first nine months of 2019 (9M19) and contributed a maiden EBITDA of RM1 million after ten quarters of operations.

This comes as media firms continue their transformation programmes in addition to further cost rationalisation plans.

“Similar to other industries’ players, the sector incumbents have continued to explore and find ways to venture into the digital space,” it added. “While the efforts are set to continue, it is not expected to complement the deteriorating traditional adex revenue, at least over the short-tomedium-term.

“To cushion the earnings impact, most of the media operators have launched yet more cost reduction programs, which are set to reduce and optimise the human resources as well as operating costs further.

“The moves, however, are expected to provide some pressures to the short-term financial performance but could yield better growth prospect over the longer term.”

Meanwhile, Kenanga Research highlighted that potential shares overhang remains a concern as there was no solid follow-up development since the authority commented to review the stakes held by political parties in media companies to 10 per cent last September.

“While we understand the government’s intention is to enhance press freedom and media independence for the country, the implementation of the proposed ruling is easier said than done given that valuations could be a major concern.

“Extensive share overhang is expectedtoemergeshouldthestakelimit ruling is applied. Having said that, we believe Putrajaya may likely provide the incumbents reasonable time frame to seek for new investors, if any, as well as to allow for exemption subject to the authority’s approvals.

“All in, moving into year 2019, we expect the sector’s prospect to remain uninspiring amid the soft adex outlook (no thanks to the lack of adex-friendly events) coupled with new technologies that continue to reshape the media industry.

“Advertisers will likely continue to remain subdued towards the traditional media type (iTV and Print) while seeking new opportunity in the digital media.”