The Edge reported that Star Media will be shutting down its video-on-demand service “Dimsum Entertainment” at the end of September this year to cut-loss on this segment while looking for new business opportunities. We view this move positively as the OTT space is very competitive and it has not been able to gain significant traction since its launch. Thus, an exit from the segment will prevent the group from bleeding further while allowing it to better reallocate its resources to its main business operations. However, we reckon that more will need to be done for the group to turnaround. Maintain HOLD, TP raised to RM0.45 (0.5x FY21 P/NTA) from RM0.32. Downside support would come from its NCPS of RM0.48.

NEWSBREAK

The Edge reported that Star Media will be shutting down its video-on-demand service “Dimsum Entertainment” at the end of September this year to cut-loss on this segment while looking for new business opportunities. The team that works in the Dimsum division will be redeployed within the group to work on other ongoing or new projects.

HLIB’s VIEW

FY20 in the red. Recall that the group recorded a core net loss of -RM70.3m in FY20. The group was in a dire need of a major business restructuring and cost optimization to remain a sustainable business in the long term. The shutdown of Dimsum Entertainment marks the first major corporate restructuring effort from the group since its new CEO Alex Yeow came on board on 1 March 2021.

A much needed business reinvigoration. We view this move positively and welcome it sooner rather than later. The OTT space is a very competitive space and Dimsum OTT has not been able to gain significant traction since its launch (Nov 2016) with only 1.1m subscribers as at 31 Dec 2019 (note that this number is inflated as it includes subscribers as well as free users). While the Dimsum OTT is currently still in gestation period, an exit from the segment will prevent the group from bleeding further while allowing it to reallocate its resources optimally to its main business operations.

Forecast. We leave our forecast unchanged for FY21 as the termination will only be completed in 3Q21. Following the anticipated cost savings from this exercise, our FY22 loss forecast narrows to -RM19.4m from -RM29.2m previously.

Maintain HOLD, TP: RM0.45. In view of this development which would help reduce Star's losses, we raise our P/NTA target from 0.35x to 0.5x (roughly -1.2SD below 3- year mean). We view this move by the group as a good start in its restructuring and cost optimization efforts. The recent changes in the senior management of the group could potentially bring fresh perspective to the group’s business and may be able to drive it in a new business direction. However, we reckon that more will need to be done for the group to turnaround. Nonetheless, downside support would come from its NCPS of RM0.48. Maintain HOLD with higher TP of RM0.45 (from RM0.32).

Source: Hong Leong Investment Bank Research - 6 Apr 2021