We reiterated our UNDERWEIGHT call on the media sector in view of the on-going

subsidy rationalization plan which will continue to weigh on the consumer

sentiment, although the current FIFA World Cup and Visit Malaysia Year could
somehow provide some cheer and help to cushion the negative impact. Despite
the YTD-May gross adex recorded a strong growth of +13.6% YoY (or +7.7%
after stripping-off the Pay-TV segment), we believe the growth rate has
somehow exaggerated due to different gross adex computation in the Newspaper
segment. Note that, the strong newspaper segments gross adex jump of 8.6%
YoY in 1QCY14 has not translated into positive earnings growth for the players
based on their respective latest report cards. In fact, all the newspaper
incumbents have recorded a negative YoY growth at the net advertising revenue
basis. We leave our CY14 total gross adex growth forecast unchanged at 6.8%
YoY (or 2.9% after stripping off the Pay-TV segment contribution). We reiterated
our MARKET PERFORM calls on both Media Prima (MEDIA, TP: RM2.68) and Media
Chinese Intl (MEDIAC, TP: RM0.92) while keeping our UNDERPERFORM rating on
Star Publications (STAR, TP: RM2.37). Meanwhile, we also downgraded our
ASTRO rating to UNDERPERFORM with a lower TP of RM3.10, followed the
disappointed 1QFY15 result (please refer to our ASTROs 1QFY15 result note for
more details).
Mays gross adex advanced by 10.0% MoM (vs. 2.3% MoM in April) to RM1.2b
and 13.6% YoY on YTD basis. The higher growth in Mays gross adex on a MoM basis
was not a surprise after the lower base effect in the prior month that mainly dented by the
spill-over effect of MH 370 tragedy. The better gross adex growth in May was mainly led by
higher contribution from all media types, except the Magazine segment which lowered
marginally by 1.0% to RM10.7m. Noteworthy, the newspaper segment, which was the
worst hit segment by the MH 370 tragedy (-8.7% MoM in April), managed to resume its
upward trend and grew by 8.0% MoM. On YTD-May basis, the total gross adex climbed by
13.6% YoY to RM5.4b, thanks to the continuous strong Pay-TV 25.0%), Newspaper (9.3%)
and FTA (6.8%) segments. Stripping off the Pay-TV segment contribution, the YTD-May
gross adex merely improved by 7.7% YoY. Moving forward, we believe the gross Adex
growth, especially the TV segment, may get some booster in June and July, thanks to FIFA
World Cup event.
Newspaper YTD Mays gross adex climbed to 9.3% YoY to RM1.9b. The decent YTD
growth in the Newspaper segment was mainly driven by the English segment (+29.6%
YoY) underpinned by the strong performance of both STAR (+24.4% YoY to RM463m) and

NEW STRAITS TIMES (NST, +23.8% YoY to RM626m). Based on our channel check, the
strong YoY jump in these two English newspapers was partially led by different gross adex
computation that adopted by Nielsen in the year 2014 vs. a year ago. On top of that, we
also believe that the widening discount rate was another factor that led for a robust YoY
growth. Based on our back-of-the-envelope calculations, STARs discounted rate (net
advertising revenue vs. Nielsen Medias gross adex) widened to 47.4% in 1QCY14 vs.
28.1% a year ago. Similarly, MEDIAs print division discounted rate has also expanded to
76.3% in 1QCY14 in contrast to 64.7% in the same period last year. Meanwhile, MEDIAC
also moved into a similar trend, albeit at a slower pace and recorded 29.4% discounted
rate in 1QCY14 as compared to 27.4% a year ago. Despite a positive YoY growth at the
gross adex level, the higher discounted rates have led STAR; MEDIA; and MEDIACs
newspaper net advertising revenue lowered by -11.4% (to RM137m); -14.0% (to
RM84.5m) and -7.2% (to RM153m) in 1QCY14, respectively,
The YTD Pay TV gross adex continued to record a double-digit growth of 25.0%
YoY to RM2.0b at the expense of FTA TV, which merely added only 6.8% YoY. On a MoM
basis, the Pay TV adex climbed by 11.2% while FTA TV adex added by 8.9% due to the
lower base effect in April. MEDIAs gross TV adex, meanwhile, climbed by 5.3% YoY (or
10.2% MoM) to RM1.1b in YTD-May, thanks to the higher performance across its in-house
channels namely 8TV (+9.0% YoY to RM224m); TV3 (+2.3% YoY to RM497m); NTV7
(+0.3% YoY to RM178m) and TV9 (+13.9% YoY to RM204m). On the Pay TV front, Astro
PRIMA, Astro RIA and Astro Wah Lai Toi channels continued to rank as the top three
highest adex generators as they contributed an aggregate RM668m in gross adex or 33%
of the total YTD Pay TV gross adex of RM2.0b. On market shares, the Pay TV segment
improved by 340 bps YoY to 37.0% at the expense of the FTA TV segment.