Highlights

• We attended Star’s analyst briefing last Thursday and came away with a rather neutral view. In order to adapt to industry challenges, the group is diverting into content specification Below are some of the key takeaways from the briefing.

• Star has yet to find a suitable business to fill the void left by Cityneon. In the briefing, management mentioned that the company prefers to acquire companies of media and digital related companies but is still open to profit generating opportunities that are out of their core business.

• Starbiz Premium was officially launched two weeks ago… Starbiz entered into a partnership with Singapore Business Times and The Wall Street Journal where subscribers get to enjoy news published by all 3 publishers on a single platform for RM250/annum. We opine that this may act as a good support for the print segment.

• Shifting its focus to dimsum… We witness that the group is starting to place more effort on their OTT platform, by 1) integrating with major telcos via promotional bundles; and 2) collaborating with new regional Asian partners. The segment had gained 5x subscriber growth qoq for the past 6 months. However, we opine that the OTT platform will take some time to breakeven as content costs are expected to rise.

• Outlook: Traditional media continues to face the digital disruption. Moving forward, outlook of the company remains subdued with challenges from the continued weak consumer sentiment and economic uncertainties. However, we foresee Star to further diversify into modern channels in line with its effort to reduce its dependence on traditional media.

Risks

• (1) Weak Adex growth;
• (2) High newsprint cost; 
• (3) Threat of new players;
• (4) Depreciation of RM vs. US$ (content acquisition); and
• (5) Regulatory risk.

Forecasts

• Unchanged.

Rating

HOLD ( ↔ )

• We see Star’s earnings being affected by cautious Adex growth outlook caused by weak consumer sentiment and sluggish economy. Together with the loss of Cityneon’s contribution to the event segment, we don’t see a potential growth catalyst moving forward.

Valuation

• We maintain HOLD with an unchanged TP of RM1.47 based targeted PBR of 1.1x FY18 BVPS.

Source: Hong Leong Investment Bank Research - 4 Dec 2017