Investment Highlights

• We upgrade our UNDERWEIGHT recommendation on Star Media (Star) to BUY with a higher fair value of RM0.53/share, after pegging to a higher PB of 0.5x (previously RM0.27/share, pegged to a PB of 0.25x) as we believe that its prospects will improve following the cessation its video-on-demand (VOD) platform dimsum’s operations by September 2021. The higher PB is in line with the sector ex- a peer’s 3-year average historical PB of 0.5x.

• We also account for a 3% premium to its share price based on a 4-star ESG rating as appraised by us (Exhibit 3). We project narrower losses for FY21F–FY22F and expect to group to turn profitable in FY23F as we account for better margin assumptions for the print and digital segment following dimsum’s cessation.

• The decision to wind down dimsum’s operations was made following a strategic review by Star’s management team as it has identified new opportunities to explore instead. The dimsum team will be redeployed to work on the group’s current and new projects in the pipeline.
   
• We are positive on the group’s move as we believe that dimsum’s losses dragged Star’s performance over the years, weighing down the group’s print and digital segment which was already being impacted by the media sector’s structural decline as customers switched to digital alternatives. We are hopeful that Star would be able to strengthen its core business and expand into other noncore ventures to diversify its revenue streams.
   
• Recall that dimsum was launched in November 2016 and has provided Asia-centric content to 1.1 million subscribers as at 31 December 2019. Besides Malaysia, Star had also introduced dimsum into Singapore and Brunei as part of its regional expansion plan.
   
• The group had also introduced various features to increase monetization on the VOD platform such as e-tuition and Watch & Shop, and had various partnerships and collaborations with VISA, Digi, and the Malaysian Budget Hotels Association, on top of the addition of various content partners by the group.

• While we are still cautious on Star’s prospects due to the lack of diversification from traditional media segments, we anticipate the performance of its print, radio, and events segment to recover following an improved consumer sentiment leading to recovery in adex and as the country has begun its Covid-19 vaccination rollout. As at 31 December 2020, the group’s net cash per share stood at RM0.48/share.

Source: AmInvest Research - 6 Apr 2021