Star Media’s 1Q19 core net profit of RM2.7m (-77.3% yoy) came in below our and street expectations. The variance was mainly due to lower-than-expected revenue from all segments (print, radio and events). We cut our 2019 EPS forecast by 48% and now project losses for 2020-21E. In view of the deceleration in earnings, we changed our valuation method to P/B from PER. We reaffirm our SELL call on Star, with a lower TP of RM0.47 based on 0.4x (2SD below 3-year average) 2020E book value per share of RM1.13.

Decline in Revenue Seen for All Segments

Star Media’s (Star) 1Q19 revenue declined by 24.3% yoy to RM82.6m, attributable to a weaker performance across all its segments. Revenue for Star’s print & digital, radio and events segments suffered declines yoy to RM71.9m (-21.9%), RM5.4m (-34.7%) and RM5.3 (-12.1%), respectively. The weak performance was partly attributable to a weak adex environment. After excluding for one-offs, which includes a loss on forex and reversal of credit losses, Star’s 1Q19 core net profit slumped to RM2.7m (-77.3% yoy), coming in below our and consensus expectations. The variance against our forecast was largely due to the much weakerthan-expected contributions from all 3 segments.

Better Cost Management Sequentially

On a qoq basis, 1Q19 revenue was weaker at RM82.6m (-11.3% qoq) as a result of declines in print & digital (-10.4%) and radio (-30%) but slightly cushioned by an improvement in the events segment (+4%). The group posted a better 1Q19 PBT of RM5.7m (vs 4Q18 PBT of RM2.4m – excluding MSS cost of RM15.8m) from better cost management. Core net profit was down 70% qoq, on the back of the weaker revenue.

Reiterate SELL on Challenging Outlook

We revise downwards our 2019E core EPS by 48% and now project losses for 2020-21E, in light of the persistent subdued business outlook. Given the shrinking profitability, the possibility of Star declaring dividends in the near term is low, in our opinion. We reaffirm our SELL call on Star, with a lower TP of RM0.47 (from RM0.56). Our valuation method is changed to P/B from PER previously in view of the losses forecast ahead. Our new TP is based on 0.4x (2SD below 3-year average) 2020E book value per share of RM1.13.

Source: Affin Hwang Research - 17 May 2019