DESPITE the dismal outlook of the media sector, two bright spots remain as the home shopping and digital segments have seen revenue growth during the movement control order (MCO), according to AmInvestment Bank (AmInvest).
According to AmInvest, Media Prima Bhd saw its home shopping arm, CJ Wow Shop, rising 3% in revenue quarter-on-quarter (q-o-q) and 18% year-on-year (y-o-y) in the first quarter of its financial year 2020 (1QFY20), and 13% new registered customers y-o-y. This also marks the first ever quarter the segment has broken even.
For the digital segment, Media Prima saw a 4% increase in revenue q-o-q, while other media players such as Star Media Group Bhd have also shared that engagements rose during the MCO, according to AmInvest.
“Star Media Group reported increased traffic across its digital platforms, while Media Prima reported higher engagements across its TV, digital and commerce segments. We believe that Covid-19 has hastened the decline in traditional media revenues as advertising expenditure suffers while bringing to light the rush to strengthen digital offerings and diversify non-adex revenues,” said AmInvest.
The research house noted that the higher engagements in Media Prima’s TV, digital and commerce segments were due to more viewership of its programmes, an increase in users for its news sites and radio, and more buying from home on CJ Wow Shop respectively.
Year to date, AmInvest noted that adex across all media stood at RM1.1 bil in 1Q20, according to Nielsen Ad Intel, which excluded digital ad spend.
“On a y-o-y basis, traditional media segments faltered by 9% overall mainly due to the decline in newspaper and cinema ad spend. Newspaper ad spend, which represented 33% of total adex in 1Q20, shrank 24% y-o-y by RM111 mil, likely worsened by the cessation of operations for Utusan Group’s publications, on top of the continued reduction in circulation,” said the research house.
Circulation, out-of-home and traditional radio revenues were not spared by Covid-19, as fewer customers are likely to frequent newsstands with reduced commute during the MCO. This also affects the events segment, according to AmInvest, as gatherings were not allowed, social distancing and hygiene measures would raise the cost of holding events, and event participants would be reduced over fears of contracting Covid-19.
“Another segment obviously hit by the impact of the virus would be Media Chinese International Ltd’s travel segment, which accounted for 36% of group revenue in 9MFY20,” added the research house.
AmInvest also believes that the tougher economic conditions ahead will cause caution in advertisers, leading to tightened ad spend.
“Furthermore, major sporting events such as the UEFA Europa League and the Tokyo Olympic Games have been postponed from June-July 2020 to 2021 due to Covid-19,” added the research house.
AmInvest believes that media companies need to improve operational efficiencies with more prudent cost-saving measures put in place to cushion the impact of lower revenues, especially given the challenging operating environment ahead.
“One of the key initiatives seen to date is Media Prima’s Print Towers Sdn Bhd, launched in January 2020, with the goal of optimising its print capacity where its facilities would not only cater for its in-house requirements but also for external commercial printing for The Malaysian Reserve, Selangorkini and Buletin Mutiara,” said AmInvest.
Star Media has also recently confirmed that another round of manpower rationalisation is in the cards, according to the research house, while its top management will be taking a pay cut until the end of 2020. Media Prima has also issued a press release that it will be undertaking the next phase of its business transformation, and does not rule out the possibility of staff cuts.
AmInvest maintains a neutral recommendation for the sector, with no top picks.
Sector upgrade catalysts include a growth in digital initiatives being able to meaningfully offset declines in traditional media, the recovery of consumer confidence and adex catalysts, and the possibility of privatisation and merger and acquisition opportunities.
The catalyst for a downgrade include the continued challenging environment of monetising digital content due to intense competition, a longer-than-expected gestation and traction of digital initiatives, and a significant deterioration in adex and traditional media revenues. – July 23, 2020
