Investment Highlights

• We maintain HOLD on Star Media Group (Star) with an unchanged fair value of RM0.73/share pegged to a P/B multiple of 0.7x. We lower our FY19F–FY20F earnings by 1– 31% to adjust for higher newsprint costs affecting the printing segment.
• Star’s FY18 core PAT from continuing operations exceeded our expectations at RM23mil. This is after stripping out a series of one-off items amounting to a net loss of RM18mil, mainly from the mutual separation scheme/early retirement option (MSS/ERO) expenses of RM16mil incurred in Star’s print and digital segment in 4QFY18. FY18 results exceeded our and consensus’ full-year estimates by 41% and 44% respectively.
• FY18 core PAT declined 4% mainly due to reversal of deferred tax liabilities resulting in a tax income in FY17. Meanwhile, FY18 PBT (ex-MSS/ERO expenses) of RM29mil rose 27% vs. RM23mil in FY17 (ex-MSS/ERO expenses, impairment/write-offs of PPE and goodwill, and gain on disposal of Cityneon). This was mainly due to better cost management following the MSS/ERO exercise in 4QFY17 and lower depreciation expenses from its print segment.

• FY18 revenue dropped 16%, mainly dragged by weaker adex that had impacted its print and radio segments.

• Year-on-year segmental analysis:

• Print and digital: Revenue fell 17% as advertisers remained cautious, particularly post-GE14. Meanwhile, PBT (exMSS/ERO expenses) increased 4% to RM27mil in FY18 despite being impacted by losses from the group’s over-the-top (OTT) platform dimsum.

• Radio: The softer adex environment caused both revenue and PBT to decline by 18% and 48% respectively.

• Event and exhibition: Revenue soared 80% as the group held more events in FY18 vs FY17. Meanwhile, the group recorded a PBT of RM2.7mil in FY18 vs RM0.2mil in FY17 due to better cost management.

• FY19 outlook: Moving forward, the group’s CFO Ragesh Rajendran shared that Star will continue its focus on digital products, particularly on dimsum. Additionally, its print and digital segment is expected to benefit from better cost management post-MSS/ERO exercises, despite expectations of subdued adex in CY19.

• Maintain HOLD on Star amid: (i) concerns that progress in its digital and events & exhibition segments would not be able to cushion the bleak prospects of print and radio, (ii) the challenging monetization of digital initiatives, and (iii) the lack of growth component following Cityneon’s disposal.

Source: AmInvest Research - 27 Feb 2019