Star’s traditional print revenue dragged the group into losses in 1Q20 after recording positive earnings the past four quarters. Star is looking to optimize their base by focusing into commerce division as a way of leveraging their existing brand footprint. For dimsum, they are expecting the vide o streaming services to breakeven at EBITDA level in 2 years period. Although the print segment has been hit severely, management are confident that the physical newspaper will not be obsolete. Maintain HOLD rating with TP of RM0.41, based on a P/NTA ratio of 0.4x, which is roughly -1.5SD below its 3-year mean.

We Joined Star Media Briefing Yesterday; the Following Are Some Key Takeaways.

Recap. Star’s 1Q20 revenue of RM65.8m translated into core LATAMI of -RM3.5m, which missed ours and consensus full year forecasts of +RM7.0m and +RM3.2m, respectively. Traditional print revenue continued to show weakness and dragged the group into losses after recording positive earnings the past four quarters.

Commerce. As the nature of the e-commerce business, the main cost of this consists of the customer acquisition cost. Star is looking to optimize their base by focusing into commerce division as a way of leveraging their existing brand footprint. Being the most visited English news portal website, Star viewed that their wide reach of audience should keep this cost minimal moving forward. At this juncture, Star has already extended their commerce footprint in Kuali.com website, and is currently looking to scale up this commerce division in dimsum streaming services.

dimsum. At this juncture, they are expecting the video streaming services to breakeven at EBITDA level in 2 years. The new development is also going to hardware, in which their partners of Huawei and Oppo to have the dimsum app preloaded into the new gadget to increase Star’s brand reach. Furthermore, the group also witnessed a big jump in digital advertising during the MCO with the double up in traffic flow into their website. There have been a lot of request starting from April, for ad bookings through their OTT, as the advertisers regard the subscribers to be those with higher purchasing power hence less affected by the economic downturn from this pandemic.

Traditional segment. As the mainstream news flow tend to be relatively the same across news channels, Star is looking to differentiate themselves by providing more interesting analysis research articles and opinion pieces. Although the print segment has been hit severely, management are confident that the physical newspaper will not be obsolete. This is evident from their well-received bundle package of print + ePaper (RM48.25/month) as compared to the digital access alone (RM7.78/month). From its data, it was observed that the way people consume news are different across these types of products. For example, digital news is more geared for those that are in a rush with the flexibility of scrolling through just the headlines. On the flipside, opinion piece readers tend to gravitate towards their ePaper and prints, as this content would require a complete engagement and focus. We maintain HOLD with TP of RM0.41, based on a P/NTA ratio of 0.4x, which is roughly -1.5SD below its 3-year mean. Though the management are expecting the digital contribution to be the main driver for Star’s growth, we are still cautious in its earnings delivery as the traditional media contribution is falling at a faster rate. Despite more than 10% upside, we still remain Hold as we view the outlook for Star Media to remain bleak, due to the negative ramification of Covid-19 which we believe has magnified the tragedy of digital disruptions for the group

Source: Hong Leong Investment Bank Research - 3 Jul 2020