Star Media said the court has ruled that the company be paid damages by Jaks, being late payment interest at a rate of 8% per annum on the RM134.5m owed from Oct 25, 2015 and July 6, 2020. Premise on the assumption that Jaks will not file for an appeal for the next 14 days, Jaks still owe a remaining sum of RM542k to Star (as at 6 July 2020). This solid cash pile RM398m, could further support them in bracing the storm ahead in this Covid -19 environment. Maintain HOLD rating with TP of RM0.41, based on a P/NTA ratio of 0.4x.

NEWSBREAK

Star Media Group’s Bhd said the High Court has partly allowed its summary judgment application in respect of its corporate guarantee claim against JAKS Resources Bhd (Jaks). The claim is related to the balance purchase price of RM134.5m for the sale of a piece of land in Section 13, Petaling Jaya from Star Media to Jaks.

HLIB’s VIEW

Summary. This was a continual of the Joint Development Agreement (JDA) between Star and Jaks to develop a leasehold land located along Jalan 13/6 in Section 13, Petaling Jaya. In the terms and conditions of the JDA, Jaks had earlier applied and obtained the approval for the development of the land into a mix development (see Figure #1) in accordance of development order of: (i) one office block of 15 storey building (Tower A) measuring gross built up area of not less than 270k sqft. equivalent to market value of RM135m; (ii) one educational block/office block; (iii) one podium; and (iv) three residential blocks. The sale consideration shall be satisfied by Jaks in the manner of cash deposit of RM500k and the balance of RM134.5m be satisfied by Jaks to Star within 3 years from the date of the JDA (from 19 August 2011). In the event Jaks fail to complete their obligations, Jaks are required to pay a late payment interest of 8% from RM134.5m until this transaction is completed.

Plan utilization. Based on the JDA, when completed the development will be utilized for future expansion needed for the Group to accommodate their multi-media and radio division which are currently operating from rented premises. Any unutilized spaces will be used to generate rental income for the group.

Court decisions. As the delivery of ownership of Tower A by Jaks has reached their deadline on the 15 February 2018, the High Court have decided on 7 August 2020 that Jaks shall pay RM50.5m in damages. This were derived form the late payment interest on the Balance of Purchase price of RM134.5m at the rate of 8% per annum, from the period of Oct 2015 to 6 July 2020. The late payment interest would continue running from 6 July 2020 until Jaks completes the obligations as stated above.

Financials. We understand that Star have received a bank guarantee of RM50m on 9 Jan 2019 when Jaks failed to deliver Tower A within the stipulated period. Taking this into calculation, premise on the assumption that Jaks will not file for an appeal for the next 14 days, Jaks still owe a remaining sum of RM542k to Star (as at 6 July 2020). This will further increase Star’s cash reserves, currently stands at RM398m. This solid cash pile could support them in bracing the storm ahead in this Covid-19 environment, noting their latest red results reported that dragged the group into losses after recording positive earnings the past four quarters.

Forecast. Unchanged pending further development update from the management. 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. 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 - 10 Aug 2020