KUALA LUMPUR: Advertisers could be more cautious about their ad spending this year as revenge spending by consumers normalises following the diminishing base effect and weakening consumer sentiment caused by inflationary risks.
Hong Leong Investment Bank Bhd (HLIB) noted that the relaxation of pandemic restrictions and the resumption of economic activities helped to drive the growth and recovery in advertising expenditure (adex) seen in the first ten months (10M) of 2022 compared to 2021.
However, the bank-backed research firm noted that with the uncertain economic outlook for 2023, any decline in consumer spending could negatively impact advertisers' sentiment and, thus, lower adex spending.
HLIB noted that Malaysia's adex environment saw a vast improvement in 2022 compared to 2021 as the country transitioned to endemicity on 1 April, allowing the economy to reopen completely.
Based on Nielsen's data, 10M22 adex grew by 12 per cent, with total industry adex reaching RM5.3 billion compared to RM4.73 billion achieved in 10M21, following the country's full reopening of economic activities.
All segments registered year-on-year (YoY) growths except in-store media, which declined by 66.4 per cent.
HLIB noted that the top three biggest improvements were seen in the cinema (+9.2x), digital (+33.6 per cent) and radio (+29.4 per cent) segments.
"Notably, we see a bigger shift away from newspapers as a major advertising segment into digital as the gap between the two has widened further," the research firm noted.
To note, newspaper ad spending stood at RM722.3 million for 10M21, while digital adex was RM815.2 million. For 10M22, newspaper ad spending was RM863.8 million, while digital adex was RM1.1 billion.
HLIB also noted that the US Dollar (USD) has begun to come off its peak, while the ringgit has regained its strength post-GE15.
"Should the USD continue to weaken relative to the ringgit in the following months, this will help ease elevated newsprint costs, which is a positive for Star Media Group Bhd, as its print segment might see margin improvements, whereas Astro Malaysia Holdings Bhd might see lower hedging costs as the company regularly hedges its USD exposure," the firm noted.
HLIB said the fourth quarter (Q4) 22 adex should be stronger as advertisers spend more freely for the Christmas and Chinese New Year periods and coming off the back of the FIFA World Cup.
"However, looking further ahead, there is a lack of clarity on the trend of adex follows the fluidity of global economic events.
"For these reasons, we downgrade our sector rating to 'Neutral' from Overweight.
"There are no changes to our calls for Astro (Buy with a target price of RM1.15), Star Media (Hold with a target price of RM0.31) and Media Prima Bhd (Buy with a target price of RM0.54," the research firm said.
The top pick for the sector is Astro, as HLIB believes that following the recent selloff, most of the company's negatives have been priced in.
Moreover, the firm noted that the stock has a projected FY23-FY24 dividend yield of 9.8 per cent.