We attended Star’s analyst briefing last week and came away with a rather neutral view. The group has plans on staff retrenchment and monetizing its landbank. Besides, the group is also focusing on digitalisation, however we expect the monetisation of digital platform to take time to bear fruit. In the near term, we do see any catalyst and opine that the cost saving measures may not be sufficient to cushion the falling revenue. We maintain HOLD with an unchanged TP of RM0.62 based on 0.6x FY19 P/NTA.

We attended Star’s analyst briefing last week and came away with a rather neutral view. Below are the key takeaways from the briefing.

Further staff retrenchment on the horizon. Star shared that they intend to reduce their staff count in the print division by 200 employees (100 employees before year end). Note that this is in addition to the 100 employees let go with the closing of the Penang printing plant, after consolidating their printing operations in Shah Alam. The group expects to save ~RM6m from the separation scheme in Penang. At time of writing, Star has just under 1,400 employees, of which 1,000 are involved in print and digital media operations.

Disposal of Penang land. Star has 19 parcels of land at a net book value of RM158.7m based on historical cost valuations. Given the closure of the Pinang printing operation, we expect the group to dispose the land with a book value of RM38.9m.

Industry adex figures. Star Media Group reported declining adex in line with other industry players, citing the change in media consumption behaviour. Despite this, the group is encouraged by the 3Q18 17% YoY growth in digital revenue.

Digital transformation. Star Media’s newly appointed CTO shared that he expects to streamline content creation from various business units (digital, print, radio etc.) into a single entity in order to reduce headcount and allow the group to offer advertisers ability to reach their desired consumer through better targeted ads over multiple platforms. We opine that online digital adex revenue is the main source of growth going forward for Star given their strong reader base (Figures #1 and #2). We expect Star to step up its efforts to increase digital readership and hence digital revenues for Star Online.

Outlook. Traditional media continues to face the digital disruption. Outlook of the company remains subdued with challenges from the declining newspaper circulation, weak consumer sentiment and economic uncertainty. While we are positive on the group’s digital transformation, we expect the monetisation of their digital platform to take time to bear fruit.

Forecast. Unchanged.

Maintain HOLD; RM0.62 We maintain HOLD with an unchanged TP of RM0.62 based on a P/NTA ratio of 0.6x to reflect the lack of near term catalyst in earnings growth.

Source: Hong Leong Investment Bank Research - 10 Dec 2018