The gap in the ROI between digital and traditional media is narrowing and this drives ad spend back to traditional media
by S BIRRUNTHA / Pic by BLOOMBERG
THE advertising space in Malaysia is undergoing a consolidation phase with advertisers no longer relying on either digital or traditional media and willing to adopt an omnichannel approach to widen their reach, as well as to mitigate regulatory and policy change risks.
Hong Leong Investment Bank Bhd (HLIB) analyst Tan Kai Shuen stated that the gap in the return on investment (ROI) on ad spend between Facebook and Google versus the traditional media is also narrowing which should drive more ad spend back to the traditional media.
“The initial presences of Facebook and Google had disrupted the local advertising and media landscape as they took up an estimated 80% of digital advertising expenditure (adex) in Malaysia which cannibalised some of the traditional medias’ shares.
“Advertisers preferred Google and Facebook due to low cost (an ad can be run at less than RM10), ease of setting up an ad, targeted audience reach and superior customer analytics,” he wrote in a sector report yesterday.
Tan maintains an ‘Overweight’ call on the media sector, premised on the brighter outlook and undemanding sector valuations.
He added that with inflationary pressure on raw material cost compressing the operating margin of sectors such as consumer and manufacturing, investors who look for inflation-resistant havens could find the media sector (especially Astro Malaysia Holdings Bhd and Media Prima Bhd) to be appealing as their cost base (content cost) is largely unaffected by inflationary pressure.
He said the net cash positions of Media Prima and Star Media Group Bhd, and the generous dividend yield from Astro provide a decent buffer against the downside to share prices.
“The sector has a relatively low environmental, social, and governance (ESG) risk due to its low exposure to material ESG issues.
“As leading indicators such as the improving consumer and business sentiments, projected economic growth for Malaysia (HLIB estimate: +5.5% year-onyear [YoY] for 2022) are pointing towards a brighter adex outlook, we believe investors should take this opportunity to nibble in the sector while valuations are still undemanding,” he added.
CGS-CIMB Securities Sdn Bhd noted that the traditional media’s adex prior to the discounting factor rose 20.3% YoY to RM4.9 billion in 2021, citing data aggregated by market research firm Nielsen Malaysia.
Its analyst Kamarul Anwar said the 2021 ad revenue soared 20.3% YoY to come in just 5% shy of 2019’s adex market value of RM5.2 billion.
“We find this impressive considering that Malaysia was confined to Movement Control Orders for large parts of 2021. We maintain ‘Add’ on Astro and Media Prima,” he stated in a research note yesterday.
Kamarul said free-to-air (FTA) adex value and share in the overall market reached an all-time high in 2021.
He noted that at RM3.5 billion, the FTA adex made up 71.2% of the overall market’s value.
Kamarul sees more upside for the medium’s adex in 2022, as Malaysia’s economic reopening has prompted advertisers to spend more, judging by the 16.2% YoY jump in FTA TV’s fourth quarter of 2021 adex.
He added that advertisers that want to get visibility in news media can buy ad slots on online portals that cost a fraction of print’s.
Thus, he said there is a lot left in their budgets that can be spent on FTA TV.
CGS-CIMB has kept an ‘Overweight’ call on the media sector and its recommendation is underpinned by its preference for stocks focused on visual media and entertainment, namely Astro and Media Prima.
The broker expects Media Prima to emerge from a core net loss in calendar year 2021 (CY21) and register YoY earnings per share growth of 18.1% to 43.6% in CY22 to CY23.
“Catalysts are ad spend rising higher than expected and the 15th General Election possibly taking place in 2022, boosting the ad market. Downside risk includes unfavourable socio-economic conditions hampering ad spend and subscription revenue,” he said.
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