Consolidation in OOH will drive growth
(02/12/2019 - 08:30)

TV home-shopping drove ad spending to inch up 3% yoy and 9% mom in October. The yoy improvement was led by digital TV, cinema and OOH segments. However, the TV segment is not a good indicator of a sustainable recovery in ad spending because it is derived mostly from home-shopping. We still prefer the OOH segment because consolidation among key players in that segment will drive earnings growth ahead. Buy VGI and PLANB.

 

Ad spending showed signs of recovery but mostly led by TV home-shopping

Nielsen data show ad spending grew both yoy (+3%) and mom (+9%) in October. The major growth drivers were digital TV (+2% yoy, +8% mom), cinema (+52% yoy,  +43% mom) and OOH (+6% yoy, +2% mom). However, that was mainly driven by TV home-shopping operators, including TV direct sales (largest contributor in October) and O Shopping. Hence, this is not a good indicator of overall industry trends. Ytd, ad spending in the OOH segment grew 4.1% yoy vs -0.6% growth in total industry ad spending.  

 

OOH segment will continue to grow but at a slower pace

OOH is an advertisers’ favorite. We are seeing see milder growth in this segment compared to the last 10 years (7.7% p.a. between 2007 and 2018) but the consolidation of leading operators such as VGI, PLANB, MACO and Hello would enhance group bargaining power against clients and suppliers. This implies top line will continue to grow and costs would drop. The key operators are expected to register earnings growth for at least the next two years.  

 

TV ad spend remains weak

TV operators are caught between a rock and a hard place. Advertisers are allocating smaller budgets for TV because that media is attracting fewer viewers, and there is rising competition among players. Recent conversations with TV operators indicate ad spending would remain muted in 4Q19 and next year. Loading factor for most operators remain low at 40-60%, which could trigger a price war with operators offering deeply-discounted ad rates to attract advertising budgets. Overall, we expect TV operators to register weaker revenues over the next few years.

 

Reiterate BUY rating for VGI and PLANB

We prefer OOH media operators to TV operators. Like other media segments, OOH segment will be adversely affected by a sluggish economy next year. But the consolidation among key players will ensure VGI and PLANB  outperform peers. We reiterate our Buy calls for PLANB (TP Bt10.5) and VGI (TP Bt11).