Investment Highlights

• We maintain BUY on Star Media (Star) with unchanged fair value of RM0.53/share, pegged to a 0.5x PB ratio as we believe that its prospects will improve following the cessation of its video-on-demand platform dimsum’s operations by September 2021. We make no changes to share price to reflect a 3-star ESG rating as appraised by us (Exhibit 4).

• We forecast wider FY21F–FY22F losses and lower our FY23F profit forecast to reflect lower margin assumptions assuming worse-than-expected performance of its traditional media segments amid a prolonged Covid-19 pandemic.

• Star’s 1QFY21 core loss of RM14mil fared beneath expectations vs. ours and consensus FY21F loss estimates of RM7mil and RM16mil respectively. This is after excluding a RM0.2mil net exceptional gain mainly from a reversal of impairment on intangible assets.

• YoY: 1QFY21 recorded a wider loss vs. 1QYF20’s RM4mil core loss due to a 35% plunge in group revenue largely on declines in print revenues and as PBT margins worsened by 28 ppts on a YoY basis due to the impact of Covid-19.
   
  • Print & digital: 1QFY21 LBT deepened to RM13mil (vs. LBT RM5mil in 1QFY20) as revenue slid by 38% due to softness in the local economy where sentiments were affected by Covid-19 and ongoing movement control order (MCO) restrictions.
     
  • Radio: Revenue declined by 2% causing LBT to widen to RM0.7mil in 1QFY21 due to weaker revenue from airtime commercials.
     
  • Event & exhibition: The segment recorded an LBT of RM0.5mil in 1QFY21 (vs. PBT RM1mil in 1QFY20) as revenue slipped by 59% due to fewer booths and events held due to Covid-19 restrictions and lower take-up rates for its events.
     
• QoQ: LBT widened compared to 4QFY20’s LBT of RM5mil due to a 16% decline in revenue as the 20% decline in print & digital segment revenue was marginally offset by higher revenues in other segments. However, digital revenue grew 17% QoQ due to higher digital advertorial, growth marketing, and paywall subscription revenues.

• Diversification strategy ahead: Star aims for 30% of its revenue to come from new businesses which are either related to property or digital products, with an aim for the split between newspaper-related, radio & events, and new businesses to be 40%/30%/30% vs. its current split in Exhibit 5.The group’s cash reserves stood at RM343mil as at end-1QFY21 and it has revised its utilization of proceeds from the sale of Cityneon for where RM66.5mil would be used for future investments. Star will continue to improve its operational efficiencies and cost minimization efforts, and focus on sustaining investments in the digital space by introducing new products and updating its existing ones to suit market needs.
   
• We remain concerned of Star’s performance due to lack of diversification from traditional media segments which have been impacted by the Covid-19 pandemic. However, a recovery in sentiments following Covid-19 vaccination rollouts could lead to improvements in its print, radio, and event segments. Furthermore, we view that its move to cease dimsum operations will also improve the group’s profitability ahead due to lower costs

Source: AmInvest Research - 27 May 2021