Investment Highlights

• We maintain our HOLD recommendation 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–FY21F earnings by 10–15% amid anticipation of weaker-than-expected adex revenue and as the implementation of the MFRS 15 (Revenue from Contracts with Customers) has altered the basis of our forecasts.

• Star’s 1QFY19 core PAT from continuing operations came in below forecasts at RM3.6mil, accounting for only 19% of our and 16% of consensus full-year estimates.

• On a YoY basis, 1QY19 core PAT tumbled by 69% as revenue deteriorated by 24%, coupled with weaker PBT margins seen across the board for all its segments, in particular for its print & digital and radio segments amid weaker consumer sentiment and continuously soft adex environment. Its event & exhibition segment also saw revenue and PBT declining by 12% and 40% respectively due to fewer events held in 1QFY19 compared with the preceding year.

• In 1Q2019, the Malaysian Institute of Economics Research (MIER) reported that its Consumer Sentiment Index (CSI) slid to 85.6 points while its Business Conditions Index (BCI) also fell to 94.3 points, below the optimism threshold of 100 points.

• On a QoQ basis, revenue declined by 11% mainly from lower print revenue while core PAT dropped by 54% after excluding one-off net losses in 4QFY18 mainly attributed to the group’s mutual separation scheme/early retirement option (MSS/ERO) expenses of RM15mil. This was despite better cost management reported in 1QFY19.

• Moving forward, Star will continue its efforts to grow its digital segment by: (i) targeting the contribution of its digital segment to offset the decline in its traditional media segments by a minimum of 5 years; and (ii) the continued focus on the regional expansion of its video-on-demand service dimsum; and its events & exhibition segment through increasing the number of events as well as varying the mix of events. The group also anticipates better performance for its print and digital segments following the cost rationalization efforts taken.
• Overall, we believe Star’s prospects remain lacklustre as it faces the following concerns: (i) slower-than-expected progress in its digital and events & exhibition segments posing a challenge in cushioning the decline in print and radio; (ii) difficulties faced in monetizing digital initiatives; and (iii) the lack of a major growth component following Cityneon’s disposal in 2017. We keep our HOLD recommendation as we believe its prospects have been fairly valued at the current price.

Source: AmInvest Research - 17 May 2019