Investment Highlights

• We maintain our HOLD recommendation on Star Media Group (Star) with a lower fair value of RM0.54/share (previously RM0.73/share), pegged to a lower PB multiple of 0.50x (previously 0.67x), a discount to the group’s 1-year historical PB of 0.63x.
• We slash our FY19F–FY22F earnings by 16–20% amid a worsening adex outlook which will continue to cause a drag on its traditional media segments. Furthermore, 2HFY19 may continue to see muted adex due to a lack of catalysts.
• Star’s 2QFY19 core profit came in beneath expectations at RM2mil, bringing 1HFY19 core profit to RM5mil. The 1HFY19 results accounted for only 31% of our full-year forecasts and 36% of consensus’ estimates.

• 1HFY19 core PAT deteriorated by 59% YoY in tandem with a 23% lower revenue due to worsening performance of all its segments, particularly print and radio. The decline was mainly attributed to continuingly weak adex sentiments.

• The weaker 1HFY19 results were mainly due to the weaker 1QFY19 as 2QFY19 core profit has risen 21% despite revenue declining by 22%. In 2QFY19, the group benefited from better cost management and 32% higher PBT for its print and digital segment due to digital revenue rising 13% and improved performance for its over-the-top (OTT) businesses.

• YoY segmental analysis:

• Print and digital: Revenue and PBT dropped 20% and 65% respectively, due to a drag in print amid softer adex. This was despite digital revenue growing 22% and improved performance in its digital and OTT ventures.

• Radio: A LBT of RM1mil was recorded in 1HFY19 vs. PBT of RM2mil in 1HFY18 weighed down by a 28% fall in revenue as ad-spend shrank.

• Event and exhibition: Due to less events held by I.Star Ideas Factory Sdn Bhd’s Perfect Livin’, both 1HFY19 revenue and PBT tumbled by 22% and 46% respectively.

• On a QoQ basis, 2QFY19 core profit and revenue declined by 54% and 6% respectively due to lower print and event segment revenue, as well as the quarter’s higher effective tax rate of 46% vs. 1QFY19’s 38%.

• We maintain our HOLD recommendation amid: (i) concerns that progress in its digital and events segments would not be able to cushion the decline in print and radio, (ii) the challenging monetization and long gestation of its digital initiatives, and (iii) the lack of growth component following the disposal of Cityneon.

Source: AmInvest Research - 29 Aug 2019