Star’s 9M18 revenue of RM299.6m translated into core earnings of RM11.3m (- 63.1% YoY), which was below expectations due to higher-than-expected operating cost. Star also announced the restructuring of its management following the retirement of its CEO. Moving forward, we do not expect to see much organic growth in the company, hence we lower our FY18-20 earnings assumptions by 28-30%, respectively as we adjust for higher operating cost. We maintain HOLD rating with a lower TP of RM0.62 based on 0.6x FY19 P/NTA.

Below expectations. Star’s 9M18 revenue of RM299.6m translated into core earnings of RM11.3m (-63.1% YoY), accounting for 58% and 41% of HLIB and consensus full year estimates, respectively. The result disappointment was due to higher-than-expected operating cost.

QoQ. All 3 segments (print and digital, broadcasting and events) continued to show disappointments for the fourth consecutive quarters since 4Q17. Revenue declined by 8.4% to RM91.1m, and core earnings turn into the losses of RM1.7m from a profit of RM1.4. The lower earnings was further dragged down by radio and event segments which went into the red with losses of RM0.6m and RM0.7m, respectively.

YoY. The 23.5% weaker revenue was due cessation of TV segment and weaker contribution from all segments except for event. Star’s core net profit went into the red due to (1) retrenchment cost for the Penang plant shut down; and (2) weaker adex from Radio and Print segments.

YTD. 9M18 revenue declined by 15.6% due to weaker contribution from print and radio segments as competition in the market remains strong. However the decline was slightly cushioned by the higher event volume . Earnings subsequently plunged by 63.1% to RM11.3m due mainly to (1) losses from OTT platform (dimsum); (2) higher retrenchment cost; and (3) weaker adex.

Outlook. We do not expect to witness any near term improvement in the group’s core media business, due to the rapid transformation to the digital space. Another concern would be the recently announced restructuring of management (retirement of group CEO). Combining both external and internal challenging factors, we think the road ahead would be windy for Star.

Forecast. FY18-20 earnings are lowered by 28-30% as we adjust for higher operating cost for print and radio segments.

We maintain HOLD with a lower TP of RM0.62 (previously RM1.00), based on a lower P/NTA ratio of 0.6x instead of 1.0x to reflect the lack of near term catalyst in earnings growth. We opine that, the only saving grace would be the land banks Star owns and the group’s plan on monetizing its land banks, but we are in the view that such an exercise would take a long time to materialise into a revenue generating business (i.e. property development or REIT).

Source: Hong Leong Investment Bank Research - 3 Dec 2018