Investment Highlights

• We maintain our UNDERWEIGHT recommendation on Star Media Group (Star) with an unchanged fair value of RM0.27/share, pegged to a PB of 0.25x.

• We project narrower losses for FY21F–FY22F to account for expectations of gradual recovery in adex sentiment as Covid- 19 vaccinations are rolled out.

• Star’s 4QFY20 results exceeded expectations, recording a core loss of RM5mil which brings FY20 core loss to RM57mil. This is after excluding RM38mil net one-off gains as compensation income of RM50mil for the late delivery of vacant possession of its investment property under construction from Jaks Island Circle Sdn Bhd in 3QFY20 offset impairment of PPE and intangible assets. The results were better than our and consensus full-year loss estimates of an FY20F loss of RM71mil and RM64mil respectively, due to better-thanexpected 4Q earnings.

• YoY: In FY20, Star sank deep into the red (vs. RM8mil core profit in FY19) due to a 38% dive in revenue across all segments.

• Print & digital: The segment recorded an LBT of RM28mil (vs. RM13mil PBT in FY19) as revenue fell 38% due to the impact of the movement control order (MCO) and the impairment of assets amounting RM12mil in 4QFY20. However, digital revenue marginally improved by 2%.

• Radio: The segment slipped into an LBT of RM3mil (vs. RM1mil PBT last year) while revenue contracted by 18% as Covid-19 caused weaker adex sentiments.

• Event & exhibition: Recorded a marginal LBT of RM0.4mil (vs. RM2mil PBT in FY19) as revenue tumbled 73% as numerous offline events were cancelled due to the MCO. However, Star managed to hold 1 show in December 2020 while continuing to hold online alternatives.

• QoQ: 4QFY20 core loss narrowed by RM18mil and revenue went up 6% after the government’s easing of MCO restrictions saw gradual improvement in all segments.

• We remain cautious on Star’s unexciting prospects where declines in its traditional media segments which have been worsened by Covid-19 impacts have 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.

• Nevertheless, the group has a net cash of RM353mil and no borrowings as at 31 December 2020 which will enable it for M&A opportunities and to weather through these difficult times.

Source: AmInvest Research - 26 Feb 2021