RAM Ratings: Tough times ahead for media sector

Published on 28 September 2015

Cost rationalisation was a common theme for most media players in 2014, signalling tough times ahead for the sector. As a whole, the top 5 media players in Malaysia recorded a 9.5% y-o-y decline in operating profit before depreciation, interest and tax (OPBDIT), after an average growth of 8% over the past 5 years. Excluding Astro, which dominates the pay-TV segment, the sector’s OPBDIT plunged by over 40% despite cheaper newsprint. While their numbers were affected by a series of catastrophes in 2014 and one-off employee termination costs, the major media players had also been hit by the shift in advertisers’ preference to digital platforms, in line with changing consumer trends.

 “We estimate that the industry’s discounted adex for print, FTA and pay-TV – which account for over 90% of total adex - shrank around 6% in 2014,” highlights Kevin Lim, RAM’s Head of Consumer and Industrial Ratings, in line with the release of RAM’s sector commentary, New Media: Shaking things up. While we see a broad-based decline across the 3 mediums, the print segment had suffered the most. We view this to be in line with the industry-wide decline in print circulation. The total circulation for English and Malay dailies dropped from 3.29 million to 3.00 million last year, i.e. a y-o-y fall of 8.8% (2013: +0.3%).

Overall, we expect another single-digit contraction in real adex in 2015. The pressure is only envisaged to ease in 2H 2016, as consumer sentiment gradually improves. We had previously anticipated an improvement in adex in 1Q 2015, boosted by advertisers’ aggressive promotions in the lead-up to the GST implementation in April. Contrary to expectations, however, adex had remained subdued as advertisers had stayed cautious; this trend carried through to the second quarter.

All 3 media companies in RAM’s rated universe (Star Media Group Berhad, Media Prima Berhad, Media Chinese International Limited) are highly rated entities with long-term ratings of AA1/Stable. Despite subdued operating performances in 2014, the 3 rated players are held up by their strong balance sheets and still healthy cashflow-protection metrics. However, with the present shift in the industry, the players’ ability to adapt their business strategies to the changing operating landscape will feature prominently in our rating assessment. We caution that further deterioration in their operational performances and cashflow will put pressure on their ratings. The ratings will also come under pressure if new media platforms rapidly gain relevance at the expense of the traditional ones. 

The full report is available to subscribers at www.ram.com.my.

Media contact
Amy Lo
(603) 7628 1078
amy@ram.com.my

Sahil R Kamani
(603) 7628 1084
sahil@ram.com.my