Investment Highlights

• We maintain our UNDERWEIGHT recommendation on Star Media Group (Star) with lower forecasts but unchanged fair value of RM0.31/share, pegged to a PB of 0.3x.

• We slash our FY20F–FY23F earnings forecasts and now project wider losses to account for the worse-than-expected impact of the Covid-19 pandemic on adex sentiments, accelerating revenue declines in traditional media, particularly for print which remains as the group’s largest revenue contributor.

• Star’s 2QFY20 core loss of RM27mil was markedly below expectations, bringing 1HFY20 core loss to RM30mil after excluding RM1mil net exceptional loss from allowances for credit losses. The results were poor compared to our and consensus’ full-year FY20F loss forecasts of RM9mil and RM12mil respectively.

• YoY: 1HFY20 fell into wide losses due to 39% fall in revenue as all segments saw poor performance, particularly for Star’s print and radio due to the impact of the movement control order (MCO) which caused advertisers to turn very cautious. Print & digital revenue plunged 40% while radio revenue dropped 23%. Meanwhile, the events segment also reported lower revenue and PBT due to event cancellations in 1HFY20 due to the Covid-19 pandemic.
  
  Star’s print & digital segment contributed 88% of group revenue in 1HFY20, followed by radio and events contribution of 9% and 3% respectively.

• QoQ: Revenue and earnings before tax continued to drop for all three segments, which are still suffering from Covid-19 impacts despite the gradual easing of MCO restrictions.

• Outlook: Star expects digital revenue to grow despite challenging market conditions and will focus on using new technologies and analytics to increase engagement and monetization of revenues beyond print. Meanwhile, the group will continue its cost-cutting measures which include manpower rationalization and restrategizing operations. With more than RM300mil cash reserves and no borrowings as at 30 June 2020, the group is still looking for M&A opportunities in both core and non-core businesses.

• Despite the group’s efforts to diversify its revenue streams, we remain concerned on Star’s unexciting prospects where declines in its traditional media segments are yet to be mitigated by growth in its digital earnings due to difficult monetization amidst intense competition. Furthermore, the group’s over-the-top platform dimsum is still in its gestation period

Source: AmInvest Research - 28 Aug 2020