Star posted a core loss of RM0.3m in 3Q18 on the back of lower contribution from all divisions. Its 9M18 core net profit of RM12.9m (- 58.7% yoy) came in below ours and consensus expectations. The variance to our forecast was primarily due to lower-than-expected contribution from the group’s core print and radio segments. In light of the downbeat results, we cut our earnings forecasts by 52%-56% for FY2018-20E. We reiterate our SELL rating for Star with a lower TP of RM0.51 based on 18x (2SD below 3-year average) 2019E core EPS.

9M18 Results Below Expectations

Star Media’s (Star) 9M18 revenue posted a decline of 15.6% yoy to RM299.6m, mainly attributable to lower contribution from the print & digital and radio broadcasting divisions. Revenue for print & digital and radio broadcasting declined to RM258.5m (-15.7% yoy) and RM21.8m (-17.7% yoy) respectively, but partially offset by higher contribution from the event & exhibition division by 75.6% yoy to RM12.1m. Core net profit for 9M18 came in at RM12.9 (-58.7% yoy). This is below our and consensus expectations, accounting for only 33% and 46% of 2018E forecasts, respectively. The variance to our forecast was mainly due to lower-than-expected contribution from the print and radio broadcasting segments.

Core Loss of RM0.3m in 3Q18

Sequentially, 3Q18 revenue came in lower at RM91.1m (-8.4% qoq) as a result of lower contribution from all segments. Excluding one-off items, which includes a gain on disposal of a subsidiary and retrenchment cost for Penang plant shutdown, Star recorded a core loss of RM0.3m in 3Q18 vs. a core profit of RM1.5m in 2Q18. We expect the print segment to be further affected by retrenchment costs and rationalisation exercises ahead.

Cutting Our 2018-20E Earnings, Reiterate SELL Call

We cut our 2018-20E core EPS forecasts by 52-56%, after taking into account the lackluster results. Our new 12-month target price is revised lower to RM0.51 (from RM0.88), based on 18x PER (current 2SD below its 3-year average mean, from 15x) after taking into account potential yield that could be derived from the group’s current land and property holdings. Nevertheless, we reiterate our SELL call as we remain cautious on the ongoing challenging outlook for the media industry.

Key Risks

Key risks to our call include a sharp improvement in adex revenue, a substantial improvement in hard-copy newspaper circulation and a much higher-than-expected earnings contribution from the non-print segment.

Source: Affin Hwang Research - 3 Dec 2018