Star’s 1Q19 revenue of RM92.7m (-15% YoY) translated into core earnings of RM3.6m (-68.1% YoY), in line with HLIB estimates but below consensus. Print and broadcasting continued to show weaknesses in 1Q19 but these were cushioned by better cost management. We keep our forecast unchanged. Maintain HOLD rating with unchanged TP of RM0.68, based on a P/NTA ratio of 0.6x.

Results in line. Star’s 1Q19 revenue of RM92.7m (-15%) translated into core earnings of RM3.6m (-68.1% YoY), in line with HLIB estimates, but below consensus, accounting for 21.7% and 15.7%, respectively. Weaker results were weighed by lower contributions from all segments. Note that 1Q is a seasonally weak quarter for Star.

QoQ. Star sustained top line growth in event & exhibition segment (+3.9%), however the contribution from other segments disappointed, especially from print and radio, which weakened by -9.9% and -30%, respectively. Nevertheless, the only bright spot was lower operating expenses (-9% excluding 4Q18’s MSS cost) mainly attributable to better cost management.

YoY. Revenue dropped -15% resulting from all segments; print (-21.4%), radio (- 34.7%) and event & exhibition (-12.1%). Operating expenses cushioned the overall weakness by recording –a 14.8% savings, while finance cost dropped further by - 84.6%.

Going big on event & exhibition. Management is positive on the contribution from this segment which should surpass FY18’s due to the number of events that it has already secured. Management is expecting to organize higher number of event in FY19 compared to 10 events in FY18.

Outlook. While we are positive on its recent initiatives, we are cautious in its earnings delivery as the traditional media contribution is falling at a faster rate. Management has guided for the digital contribution to catch up in the next 5 years and investment in this segment is expected to accelerate due to promising results. We can expect higher revenue growth in FY19 from digital and event & exhibition. The structural shift in media sector will hamper earnings deliverable from print and radio segments.

Forecast. No Change to Our Forecast.

Recommendation. We maintain HOLD with an unchanged TP of RM0.68, based on a P/NTA ratio of 0.6x. We believe the group will take initiatives to further defend its bottom line through various efforts, including driving digital contribution, cost rationalisation and asset unlocking activities.

Source: Hong Leong Investment Bank Research - 17 May 2019