Investment Highlights

• We downgrade our recommendation on Star Media Group (Star) from a BUY to a HOLD with a lower fair value of RM1.14/share (previously RM1.57) after switching from SOP to a P/B valuation method, which we believe is more suitable due to uncertainties in future cash flows. Our fair value is pegged to a P/B multiple of 0.8x, representing a discount to its 3-year average P/B due to the ailing prospects of print media.

• We have slashed our FY18F-FY20F earnings by 27-37% to account for the continued deterioration in print revenue and concerns whether the decline in print would be offset by Star’s other business segments i.e. digital, radio and events and exhibitions.

• Star’s 2QFY18 core PAT from continuing operations came in at RM1.4mil, compared to a loss of RM1.6mil for the same period last year. This brings 1HFY18 core PAT from continuing operations to RM13.1mil, which is markedly below our expectations and accounts for 29% of our and 27% of consensus estimates.

• Core PAT from continuing operations improved from RM1.1mil in 1HFY17 to RM13.1mil in 1HFY18 due to better cost management arising from impairment of its printing assets and its mutual separation scheme/early retirement option (MSS/ERO) exercise in FY17. 1HFY17 was also a lower base as it was impacted by a drastic decline in print revenue which saw Star slipping into the red for 2QFY17.

• Meanwhile, the group’s revenue decreased 12% in 1HFY18 impacted by lower revenue in its print and radio segments amid weaker advertising expenditure (adex) after the 14th general election (GE14).

• Print and digital segment: During 1HFY18, Star’s revenue for this segment dropped 13% YoY as advertisers turned cautious post-GE14. This was despite the 2018 FIFA World Cup where we expected to see a pickup in adex. Historically, Star’s revenue expanded 9-26% YoY in the past two FIFA World Cup events as corporations advertised ahead of the games.

• Although seeing a decline in revenue, PBT rose 75% from RM11mil to RM19mil due to lower salaries and depreciation expenses from its print segment following asset impairments and the MSS/ERO exercise. The group also shared that digital revenue was higher but its overthe-top (OTT) platform, dimsum had registered losses which impacted segment profit. Moving forward, the group will continue to drive more subscriptions on

dimsum as there are plans to expand regionally.

Source: AmInvest Research - 20 Aug 2018