Star Media Group (Star) posted FY19 headline net profit of RM5.7m (+4.7% YoY) due to the lower operating expenses. After stripping out the one-off loss on subsidiary liquidation amounting to RM2.8m, Star recorded a full-year core net profit of RM8.3m (-63.1% YoY). The weaker set of results were in tandem with the lower revenue due to the declining adex spent in the print segment as the traditional medium continued to be affected by the structural change in the industry. Full-year core net profit were slightly above our and consensus estimates, accounting for 107% of our estimates respectively. In view of the poor earnings visibility due to the digital segment not gaining enough traction to cushion the decline in traditional adex and lower print circulation, we cut our FY20-FY21F earnings forecasts by 20-31%. As such, we lower our P/BV multiple to 0.35x (0.4x previously) to derive a revised TP of RM0.38. Maintain Neutral. Meanwhile, note that the group is currently sitting on a huge cash pile of RM385.9m which translates to a net cash per share of RM0.49. On a side note, Star declared an interim single tier dividend of 2sen.

• 4QFY19 revenue dropped by 18.3% YoY as both Print & Digital (-15.3% YoY) and Radio (-7.2% YoY) segments recorded lower adex revenue. However, given that advertisers are gradually shifting to digital platforms, the digital segment recorded a 32% growth YoY which helped to partially mitigate the decline in Print revenue. Meanwhile, the Events and Exhibition segment suffered a drop of 81.6% YoY as due to the lesser Perfect Livin’ events held.

• 4QFY19 PBT grew by 137% YoY to RM4.9m from a loss of RM13.3m as the Print and Digital segment recorded higher PBT of RM6.7m (+150% YoY) as compared to a LBT of RM13.5m due to one-off MSS expenses in 4QFY18. Radio segment posted a lower PBT of 23.3% YoY, in tandem with the weaker adex revenue.

• Moving forward. The Star’s management will continue to focus on its digital segment via new technologies and analytics to provide better monetisation opportunities in order to drive new revenue streams beyond traditional medium. However, we believe that the long gestation period of dimsum could elevate cash burn rate before it turns profitable. Outlook is expected to remain challenging as advertisers are likely to remain cautious on ad spend in light of the slower global economy growth as well as the negative impact of Covid-19 on the Malaysian economy.

Source: PublicInvest Research - 28 Feb 2020