Star’s 1H20 core LATMI of -RM30.1m (SPLY: RM3.6m) missed ours and consensus estimates of core FY20 LATAMI of -RM9.9m/-RM11.9m, respectively. All segments disappoint with event suffered the most with only RM156k recorded this quarter. We slashed our earnings FY20/21/22 forecasts to losses of –RM80.1m/-RM35.2m/-RM30m. Maintain HOLD, TP lowered to RM0.32 (0.35x FY21 P/NTA) from RM0.41. While the outlook is bleak, share price is significantly below NCPS of RM0.50.

Below expectations. Star’s 2Q20 core LATAMI of -RM26.6m (QoQ: -RM3.5m, YoY: RM1.0m) brought 1H20’s sum to -RM30.1m (SPLY: which missed ours/consensus full year loss forecasts of -RM9.9m/-RM11.9m, respectively. The results shortfall was due to lower-than-expected contributions from all segments. 1H20 one-off adjustments were minimal with a net sum of RM810k. No dividend was declared.

QoQ. Top line halved by -52.1% to RM31.5m. Contributions from all segments disappointed, with print, radio and event weakened by -47.8/-68.4/-94.6%, respectively. Subsequently, 2Q20 charted a wider loss of -RM26.9m (1QFY20: - RM3.5m) following the steep revenue decline (weak adex) alongside fixed cost.

YoY. Revenue dived by -59.5% dragged from all segments print (-57.9%), radio (- 64.1%), and event (-93.0%). As highlighted in our 1Q20 results note, it is evident that event segment feeling the most heat with recorded revenue of only RM156k for 2Q20 vs RM2.2m in 2Q19. Core LATAMI was recorded in contrast with RM1.0m core PATAMI in 2Q19.

YTD. With top line falling -39.3% to RM97.3m, 1H20 bottom line bleed red with - RM30.1m vs 1H19 of RM3.6m due to the above-mentioned reasons.

Remerging competition? The unsurprising weak adex during 2Q20 pushed the group further to losses as advertisers continue to exercise caution in this weak global economic environment. With the oldest Malaysian newspaper, Utusan Malaysia revived in July 2020, we believe Star may continue to face additional headwind with adex competition rivals underway.

Digital. The group is continuing to magnify their presence in the digital space with mediums such as Dimsum, StarProperty, Kuali and E-tuition platform. Management are clinging to the hope for digital contributions to still be the main driver for Star’s growth, with focus on new technologies and improvement in analytics. Nonetheless, this has yet to meaningfully be seen as charted by another round of bleak results. We are still cautious on its earnings delivery as the traditional media contribution is falling at a faster rate. However in the long run, we opine that Star is moving to the right direction as what could be seen with their international media peers; e.g. The New York Times recent 2Q20 results, as they chalked in historical total digital revenue that exceeded the print revenue, a milestone for the 169-year-old newspaper.

Forecast. In view of the group’s weak results, we have lowered our revenue assumptions and correspondingly widen our FY20/21/22 loss forecasts to losses of – RM80.1m/-RM35.2m/-RM30.0 from of –RM9.9m/-RM7.2m/-RM4.4m previously.

Maintain HOLD, TP: RM0.32. In view of the continued weak results (which remains in red), we lower our P/NTA multiple from 0.4x to 0.35x (roughly –1.7SD below 3-year mean), pegged to FY21 NTA/share. The outlook for Star remains bleak due to the Covid-19 pandemic coupled with the bumpy road ahead to materialize their digital revenue in this challenging economic outlook. Nonetheless, share price is already below its NCPS of RM0.50. Maintain HOLD with lower RM0.32 TP (from RM0.41).

Source: Hong Leong Investment Bank Research - 28 Aug 2020