Star Media’s 1Q18 core net profit of RM11.7m (+77% yoy) came in broadly within our and consensus expectations. Higher first-quarter earnings yoy are attributed to better cost management and lower depreciation expenses. Our 2018-20E core EPS forecasts are unchanged. Maintain HOLD but with a lower TP of RM0.97, which is based on a 13x PER to 2019E core EPS.

1Q18 Core Earnings Up 77% Yoy, in Line With Expectations

Star’s 1Q18 revenue posted a decline of 8.1% yoy to RM109m, mainly attributable to lower print and digital revenue. The revenue contribution from its print & digital and radio broadcasting operations declined by 11% and 5% yoy, respectively to RM92m and RM8.2m. The decline was partly offset by a higher contribution from the event management segment, which saw revenue increasing to RM6m (1Q17: RM2.2m) due to more events being held in 1Q18. PBT improved significantly by >100% yoy, attributable to better cost management and lower depreciation expenses from the print segment. After excluding one-off items, Star’s core earnings improved by 77% yoy to RM11.7m. This is broadly in line with our and consensus expectations, accounting for 22% and 25% of forecasts respectively.

Maintain HOLD With a Lower TP at RM0.97

Our 2018-20E core EPS forecasts are unchanged as there were no major surprises to Star’s 1Q18 results. However, we are revising our target price lower to RM0.97, based on a 13x PER (currently 2SD below its 3-year average mean, from 19x / 1SD previously) to 2019E core EPS. This is mainly to account for the structural de-rating in the print industry which has been accompanied by lower hardcopy circulation and adex due to the shift towards digital platforms. We remain cautious on Star because of: 1) the ongoing, challenging outlook for the media industry; 2) the adverse effects from the shift in adex revenue towards the broadcast segment from print; and 3) negative effects on hard-copy circulation due to the continual shift in reader preferences to reading on mobile devices and/or over the Internet.

Source: Affin Hwang Research - 17 May 2018