Wilting consumer sentiment in Malaysia tilts ad expenditure

Kuala Lumpur

POOR consumer sentiments, made worse by weak property sales and the twin Malaysia Airlines tragedies, took a toll on advertising expenditure (adex) last year, giving media companies little to cheer about.

Not much is expected of adex growth this year, given that the new 6 per cent Goods & Services Tax (GST) is expected to act as a dampener on consumer spending.

Already, companies appear to have held back on adex in the fourth quarter, traditionally the strongest one because it is when advertisers exhaust their remaining budgets. The result was an 11 per cent year-on-year drop in adex and a 4 per cent drop quarter on quarter.

AllianceDBS Research, which has a "hold" call on media stocks, said: "This suggests advertisers are starting to scale back spending in the belief that it is unlikely to boost sales in the current weak environment."

The year-on-year decline in the final quarter was broad-based; the two main advertising mediums, free-to-air TV and newspapers, reported double-digit adex falls of 12 and 11 per cent respectively. Adex fell by about a 10th in the magazine and cinema segments.

But full-year adex figures were more encouraging for Pay-TV, which clocked 10 per cent growth, and the cinemas, where growth was 16 per cent. In the Pay-TV segment, where Astro is the runaway leader with more than 90 per cent market share, advertisers spent RM5.4 billion (S$2 billion) last year. This was followed by newspapers, which pulled in RM4.65 billion in adex last year, though this was only a marginal 1.6 per cent growth.

Even so, AllianceDBS analyst Toh Woo Kim foresees challenges ahead for Astro, because Pay-TV subscriber additions turned negative in the third quarter ended October. Its net churn was 7,000, versus 16,000 net adds in the preceding quarter. "Given the weak environment, some customers are reducing their spending and have switched to cheaper alternatives such as Astro's own free-to-air satellite TV service," he said.

The company controlled by tycoon Ananda Krishnan is the largest in the segment, with a market capitalisation of some RM16.2 billion. It spent about RM1.5 billion on content, of which about 70 per cent was foreign and transacted in US dollars.

It has hedged one-year forward on its US dollar exposure and is not expected to be too affected by the ringgit's weakness.

Because newspaper publishers keep three to nine months of newsprint inventory, stronger dollar costs are also expected to be manageable.

The industry has started cost cutting. Recently, Astro laid off 52 in-house production employees; Media Prima completed a voluntary separation scheme, which is expected to reduce its annual expenses by between RM30 million and RM35 million in the coming years, versus one-off costs of RM60 million to RM80 million.

Media Chinese, dominant in the Chinese newspaper segment, has resorted to using lighter newsprint (42 grams per sq m or gsm instead of 45).

Following the implementation of the GST in April, consumer sentiments are expected to normalise, at which point AllianceDBS expects media companies to experience "decent earnings recovery".