Star Media’s 2018 core net profit of RM21.8m (-23.7% yoy) came in above our and the street’s expectations. The variance was mainly due to lower-than-expected operating costs. We lift our 2019-20E forecasts by 9-14% to take into account better cost management and in view of Star’s cover price hike, which we think should provide some respite in the near term. Meanwhile, we expect adex to remain muted in 2019 given the lack of mega events and weaker advertiser sentiment. Valuation remains high at current levels, in our view, hence we maintain our SELL call but with a new TP of RM0.56.

Results Above Expectations

Star Media’s (Star) 2018 revenue declined by 16.3% yoy to RM392.7m, mainly attributable to a lower contribution from the print & digital and radio broadcasting divisions. Revenue from print & digital and radio broadcasting declined to RM338.7m (-16.5% yoy) and RM29.5m (-17.5% yoy) respectively, but was partially offset by a higher contribution from the event & exhibition division by 79.9% yoy to RM17.2m. After stripping out one-off items, which includes gains on forex, disposal of a subsidiary and MSS expenses, Star’s 2018 core net profit came in at RM21.8m (-23.7% yoy), tracking above our and consensus expectations. The variance to our forecast was mainly due to lower-than-expected operating costs.

Sequentially Back to the Black at the Core Level

Sequentially, 4Q18 revenue came in marginally higher at RM93.0m (+2.1% qoq), mainly attributable to the higher contribution from the radio broadcasting and event & exhibition segments. After taking out MSS expenses and other one-off items, 4Q18 core earnings came in at RM8.9m vs. a core loss of RM0.3m in 3Q18. Star announced a lower DPS of 3 sen for 2018, as compared to the 2017 dividend distribution of 42 sen (or 12 sen excluding the special dividend).

Raising 2019-20E Earnings, But Maintain SELL on High Valuation

We increase our 2019-20E core EPS forecasts by 9-14% as we expect the group to benefit from better cost management and the hardcopy cover price hike in the near term. Our new 12-month target price is revised higher to RM0.56 (from RM0.51), based on an unchanged 18x PER (2SD below its 3-year average mean) applied to our 2019E core EPS. Valuation remains high at current levels, in our view, hence we maintain our SELL call on Star.

Source: Affin Hwang Research - 27 Feb 2019