Media
Maintain underweight: We expect advertising expenditure (adex) growth to slow significantly due to weak consumer sentiment and slower economic growth. Coupled with still high newsprint prices, we expect three-year forward media sector earnings compound annual growth rate of only 2%. As current risk reward ratios are unfavourable, we continue to rate Media Prima Bhd and Media Chinese International Ltd (MCIL) as “sell” but Star Publications (M) Bhd a “hold” for its attractive net 5.8% dividend yield.
We expect media sector earnings to grow by just 3% in 2012. Over the next three years, we expect media sector earnings compound annual growth rate of only 2%. Although we still expect adex revenue of media companies to continue to expand, we do not expect it to outpace cost inflation, especially higher newsprint cost.
We note: (i) shortened forward ad booking visibility from two to three months pre-Hari Raya Aidilfitri to one to two months currently due to lack of adex friendly events and weak consumer sentiment; and (ii) the eurozone debt crisis has prompted European multinationals to cut their advertising and promotional (A&P) budgets.
We expect total gross adex growth year-on-year to be mid single digit in percentage terms at best, insufficient to outpace cost inflation. To reinforce our view, each adex bull cycle in the past lasted five to 11 quarters before contracting or stalling. This adex bull cycle has already lasted for 11 quarters.
Our forecast is based on two times real GDP growth of 3.5% and will be the weakest for a “peak” year (Olympics, Euro Cup football and general election) in a decade. This weakness is due to the slowest real GDP growth for a peak year and European MNCs cutting their A&P budgets. There is also added downside risk from slower-than -expected economic growth.
Spot newsprint prices have remained elevated at US$700 (RM2,205) per tonne to US$750 per tonne. The financial troubles of the two largest newsprint manufacturers in the world, Abitbi Bowater and Norske Skog, have kept global newsprint supply tight. Media companies cannot look to cheaper newsprint prices for relief.
This is because we expect media sector earnings growth to slow markedly with added downside risk. Media Prima is a “sell” for its vulnerability to deceleration in adex growth. MCIL is a “sell” for its vulnerability to increases in newsprint prices. Star is a “hold” for its attractive net dividend yield of 5.8% for 2012. — Maybank IB Research, Jan 10
This article appeared in The Edge Financial Daily, January 11, 2012.
Maintain underweight: We expect advertising expenditure (adex) growth to slow significantly due to weak consumer sentiment and slower economic growth. Coupled with still high newsprint prices, we expect three-year forward media sector earnings compound annual growth rate of only 2%. As current risk reward ratios are unfavourable, we continue to rate Media Prima Bhd and Media Chinese International Ltd (MCIL) as “sell” but Star Publications (M) Bhd a “hold” for its attractive net 5.8% dividend yield.
We expect media sector earnings to grow by just 3% in 2012. Over the next three years, we expect media sector earnings compound annual growth rate of only 2%. Although we still expect adex revenue of media companies to continue to expand, we do not expect it to outpace cost inflation, especially higher newsprint cost.
We note: (i) shortened forward ad booking visibility from two to three months pre-Hari Raya Aidilfitri to one to two months currently due to lack of adex friendly events and weak consumer sentiment; and (ii) the eurozone debt crisis has prompted European multinationals to cut their advertising and promotional (A&P) budgets.
We expect total gross adex growth year-on-year to be mid single digit in percentage terms at best, insufficient to outpace cost inflation. To reinforce our view, each adex bull cycle in the past lasted five to 11 quarters before contracting or stalling. This adex bull cycle has already lasted for 11 quarters.
Our forecast is based on two times real GDP growth of 3.5% and will be the weakest for a “peak” year (Olympics, Euro Cup football and general election) in a decade. This weakness is due to the slowest real GDP growth for a peak year and European MNCs cutting their A&P budgets. There is also added downside risk from slower-than -expected economic growth.
Spot newsprint prices have remained elevated at US$700 (RM2,205) per tonne to US$750 per tonne. The financial troubles of the two largest newsprint manufacturers in the world, Abitbi Bowater and Norske Skog, have kept global newsprint supply tight. Media companies cannot look to cheaper newsprint prices for relief.
This is because we expect media sector earnings growth to slow markedly with added downside risk. Media Prima is a “sell” for its vulnerability to deceleration in adex growth. MCIL is a “sell” for its vulnerability to increases in newsprint prices. Star is a “hold” for its attractive net dividend yield of 5.8% for 2012. — Maybank IB Research, Jan 10
This article appeared in The Edge Financial Daily, January 11, 2012.
