Star’s posted core loss of -RM0.2m in 2Q19 against profit of RM1.4m in 2Q18, this brought 1H19 core earnings to RM3.4m (-74% YoY). The results were below both ours and consensus expectations at 21% and 23% of full year estimates. We cut our FY19-FY21 earnings by 27%, 23% and 31% to take into account weaker contribution from all segments as we expected muted environment for the media sector in absence of adex friendly event. We downgrade rating to SELL with lower TP of RM0.46 (previously RM0.56). Our TP is premised on FY20 BV of RM0.91 tagged at 0.5x P/NTA ratio (0.6x previously).

Results below. Star’s posted core loss of -RM0.2m in 2Q19 against profit of RM3.5m 1Q19 and RM1.4m in 2Q18, this brought 1H19 core earnings to RM3.4m (-74% YoY). The results were below both ours and consensus expectations at 21% and 23% of full year estimates, respectively. The setback was mainly caused by lower contributions from all segments that were weighed by poor consumer and business sentiments. No dividend was declared as expected.

QoQ. 2Q19 revenue dropped -5.9% to RM77.7m on the back of weaker contributions from event (-57.9%) and print segments (-3.3%). Likewise, Star posted core loss of - RM0.2m on the back of weaker revenue contributions from the above segments.

YoY. Despite lower operating expenses by -22% (RM101.8m in 2Q18), Star registered core loss of -RM0.2m from RM1.4m profit in 2Q18, on the back of weaker revenue from all segments, print (-19%), radio (-22.6%) and event & exhibition (- 37.4%). On the bright side, digital segment contribution improved thanks to the OTT performance.

YTD. 1H19 core earnings decreased -74% to RM3.4m, no thanks to lower contributions from print and radio segments although it was cushioned by lower finance cost of RM0.5m against RM2m in 1H18. Print and radio revenues fell by -20% and 29% respectively given weak sentiment on advertisement.

Outlook. While we are positive on its digital roadmap that will see new revenue streams through B2C-focused business model, we are cautious on the earnings delivery as the traditional media contribution is falling at a faster rate given Star’s earnings remain to be predominantly involved in the print and news distribution space.

Forecast. We cut our FY19-FY21 earnings by 27%, 23% and 31% to take into account weaker contributions from all segments as we expected muted environment for the media sector in absence of adex friendly events.

We downgrade rating to SELL with lower TP of RM0.46 (previously RM0.56). Our TP is premised on FY20 BV of RM0.91 tagged at 0.5x P/NTA ratio (0.6x previously). We foresee challenging outlook for Star to defend its traditional revenue, namely print and radio. In addition, despite improving contribution from digital segment, we foresee long gestation period for that segment and would not be able to contribute to the earnings immediately.

Source: Hong Leong Investment Bank Research - 29 Aug 2019