Star posted core earnings of RM1.5m in 3Q19 (+56% QoQ, 3Q18: -RM1.7m) brought 9M19 core earnings to RM5.1m (-55% YoY). The results were below both ours and consensus expectations, accounting for 54% and 53% of full year estimates, respectively. We cut our FY19-FY21 earnings by 27%-33% to take into account of weaker contributions from all segments as we expect muted adex sentiment. Upgrade to HOLD as share price has fallen 22% since our last upgrade. Our TP is lowered to RM0.40 based on 50% discount to NTA/share.

Disappointment. Star posted core earnings of RM1.5m in 3Q19 (+67% QoQ, 3Q18: - RM1.7m) brought 9M19 core PAT to RM5.1m (-55% YoY). We deem the results below both ours and consensus expectations, accounting for 54% and 53%, respectively. The deviation was mainly caused by lower contributions from print (- 19%) and radio segment (-20%).

Dividend: No Dividend Was Declared (3Q18: None).

QoQ. 3Q19 revenue gained 2% on the back of higher contributions, especially from radio (+17.6%) and event (+141%). In turn, core earnings jumped 57% to RM1.5m thanks to lower adjusted corporate tax rate of 25% (2Q19: 59%).

YoY. Despite lower revenue by 13% YoY, Star posted core earnings of RM1.5m against core net loss -RM1.7m in SPLY aided by lower operating expenses by 16%. Lower revenue was dragged by print segment (-17%) but was partly cushioned by higher event (+108%).

YTD. 9M19 core earnings decreased -55% to RM5.1m attributable to lower contributions from two segments namely print (-19%), radio segment (-20%) given the persistently soft adex sentiment. However, this was partly cushioned by the stronger event segment (+6%).

Outlook. We do not see immediate turn around for the print and radio segments given soft adex sentiment. While we are positive on its digital efforts, we are cautious on earnings delivery and opine that contribution from the digital segment must accelerate due to the declining contribution from traditional media at a faster rate.

Forecast. We cut FY19-FY21 earnings by 27%-33% to take into account weaker contributions from all segments as we expect soft adex sentiment.

Upgrade to HOLD, TP: RM0.40. Despite the results shortfall and earnings cut, the share price weakness (-32% YTD and -22% since our downgrade to Sell on 29 Aug) prompts us to upgrade our rating to HOLD but with lower TP of RM0.40 (from RM0.46). Our TP is based on 50% discount to FY20 NTA/share to reflect the lack of earnings catalysts.

Source: Hong Leong Investment Bank Research - 5 Dec 2019