Investment Highlights

• We maintain our HOLD recommendation on Star Media Group (Star) with a lower fair value of RM0.47/share (previously RM0.54/share), pegged to a lower PB multiple of 0.4x representing a discount to the group’s 1-year historical PB that shrank to 0.58x, as its traditional media segments continue to be impacted by a lack of catalysts in a challenging operating environment.

• We slash our FY19F–FY21F earnings by 53–63% due to faster-than-expected deterioration in the performance of Star’s traditional segments, in particular, for print and radio. The print and digital segment contributed 87% of group revenue while radio contributed 7% in 9MFY19.

• Star’s 3QFY19 core profit came in markedly below expectations at RM1.5mil, bringing 9MFY19 core profit to RM5.1mil. This is after adjusting for one-off net gains amounting RM0.3mil mainly from net reversal of allowance of credit losses which were offset by forex losses. The 9MFY19 results accounted for only 36% of our full-year forecasts and 49% of consensus’ estimates.

• 9MFY19 core PAT deteriorated 55% YoY in tandem with a 20% decline in revenue due to the softening adex market impacting the performance of its print and radio segments.

• Furthermore, 9MFY19 saw a high effective tax rate of 42% (vs. 9MFY18’s 35%). The effective tax rate was higher than the statutory tax rate due to the impact of taxation on nondeductible expenses.

• YoY segmental analysis:

• Print and digital: PBT plunged 69% while revenue fell 19% respectively, as print advertising and circulation revenues continued to dwindle amid the structural changed to digital. This was despite digital revenue growing 15% YoY. We reckon that print & digital PBT was impacted by Star’s over-the-top platform dimsum which is still contributing losses to the group due to it still being in its gestation period for the next 2–3 years.

• Radio: An LBT of RM0.6mil was recorded (vs. PBT of RM1.1mil in 9MFY18) as revenue dropped 19% due to cautious ad spend in the market.

• Event and exhibition: Both revenue and PBT rose by 6% due to more events held under Perfect Livin’ (home and lifestyle exhibitions)

Source: AmInvest Research - 29 Nov 2019