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Maintain Underweight. The 1Q09 results of media companies in our
analysis were mostly below expectations due to the weak economic
environment. The 2Q09 total adex is likely to contract YoY on lack of
adex- friendly events this year. We revise our 2009 adex growth
forecast from -3% to -9%. Media Prima and Star remain Sells while we
downgrade Astro from Hold to Sell on rich valuations.
Dismal quarter. Except for Astro, the 1Q09 results of media
companies were mostly below expectations due to the weak economic
environment. We estimate that total adex and GDP growth are highly
correlated at 0.9. Higher discounts led to lower net adex revenues and
dashed hopes of recovery when the Mar ’09 gross total adex appeared
relatively unchanged (-1% YoY, +30% MoM).
2Q08 high, a tough feat to repeat. May and Jun ’09 total adex is
expected to be markedly lower YoY due to the high base set last year
by the Euro 2008 ad spend. This lull may continue into Aug ’09 due to
the high base set last year by the Beijing Olympics ad spend.
Therefore, media companies are likely to experience at least another
two quarters (2Q-3Q09) of net adex revenue contractions.
Expect total adex to contract 9% in 2009. Our economics team is
now expecting domestic GDP to contract by 3.8% this year (-1.3%
previously). An unchanged total adex growth/GDP growth multiple of
2.3x (Asian Financial Crisis multiple), led us to our revised 2009 total
adex growth forecast of -9% (-3% previously).
Rich valuations, added risks. We expect adex sentiment to improve
only in 4Q09 on better economic prospects. We would also be better
able to gauge adex sentiment for 2010 then. We maintain our
Underweight call on the media sector. Media Prima and Star are Sells
while we downgrade Astro from Hold to Sell. Rich valuations (8.3x
2009 P/BV), may pose a set-back for corporate exercise involving
privatisation, take-over of Maxis, or even a merger with Measat.