Investment Highlights

• We maintain HOLD on Star Media Group (Star) with a lower fair value of RM0.73/share (previously RM1.14/share), pegged to a lower PB multiple of 0.7x, representing a discount to its 1-year PB. We slash FY18F-FY20F earnings by 29%-41% amid the continued deterioration in adex affecting its traditional print and radio segments.

• 3QFY18 disappoints: Star recorded a core LAT from continuing operations of RM2mil in 3QFY18, bringing 9MFY18 core PAT to RM11mil. This is after excluding a net gain of RM3mil, which was mainly from the disposal of one of its subsidiaries. Star’s 9MFY18 results came in markedly below expectations at only 43% of our full-year forecasts and 39% of consensus estimates.

• 9MFY18 PAT more than doubled compared to 9MFY17 after excluding net one-off gains mainly from the disposal of Cityneon amounting RM207mil. The better PAT is due to improved cost management arising from its mutual separation scheme early retirement option exercise (MSS/ERO) in 4QFY17 and lower depreciation expenses from its print segment.

• 9MFY18 revenue declined 16%, mainly dragged by its print and radio segments that were impacted by weaker adex.

• Segmental analysis:
  • Print and digital: Revenue fell 16% as adex remained soft after advertisers turned cautious post-GE14, despite the usually adex-catalytic FIFA World Cup. Meanwhile, PBT declined 33% impacted by losses from Star’s over-the-top (OTT) platform dimsum and retrenchment costs of RM1.4mil in 3QFY18 associated with the cessation of its printing operations in Penang. Meanwhile, the circulation of The Star continues to decline, falling by 19% to 176K copies in 1H18, according to the Audit Bureau of Circulations Malaysia. On a more positive note, digital ad revenues were up 17% YoY.
  • Radio segment: Revenue and PBT both slumped by 18% and 75% respectively amid the weaker adex environment.
  • Event and exhibition: As a results of holding more events in 9MFY18 compared with 9MFY17, revenue surged 76% while better cost management boosted the segment to record a PBT of RM2.2mil in 9MYF18 from a LBT of RM0.4mil in the previous year.
• Despite its series of restructuring exercises, we are neutral on Star as we remain concerned that its digital and event & exhibition segments would not be able to cushion the bleak prospects of its print and radio segments. Furthermore, the group lacks a growth component following Cityneon’s disposal and the monetization of digital initiatives remains challenging amid high competition. Maintain HOLD on Star.

Source: AmInvest Research - 3 Dec 2018