Star’s 1H19 core net profit of RM3.6m (-72.4% yoy) came in below our and consensus expectations, accounting for 30% and 24% of our respective full-year estimates. The variance to our forecast was mainly due to lower-than-expected revenue from all segments (print, radio and event). We cut our 2019 earnings forecast by 25%, while projecting core net losses for 2020-21. We maintain our SELL rating on Star, with a lower TP of RM0.45, based on a 0.4x (2SD below 3-year average) 2020E book value per share.

1H19 Core Earnings Down 72%, Below Expectations

Star’s 1H19 revenue contracted 23.1% yoy to RM160.3m, on the back of declines in all segments. Revenue from the print & digital, radio and event segments declined to RM141.7m (-20.1%), RM11.1m (-28.1%) and RM7.5m (-21.5%), respectively. The weaker performance from print & digital and radio was largely attributable to a persistently soft adex sentiment whereas for the event division, fewer events were held in 1H19. After excluding one-offs, 1H19 core net profit declined by 61% to RM5.1m (vs. 1H18: RM13.2m). The result was below our and consensus expectations, accounting for 30% and 24% of our full-year forecasts, respectively. The variance to our forecast was largely due to a much weaker-than-expected contribution from all three segments (print, radio and event).

Sequentially Weaker on Lower Revenue

On a qoq basis, 2Q19 revenue was weaker at RM77.7m (-5.9% qoq) as a result of the decline in print & digital (-2.9%) and event (-58%) but slightly offset by the radio segment (+5%). Meanwhile, core net profit fell 63.1% qoq on the back of lower revenue recorded during the quarter.

Reiterate SELL With a Lower TP of RM0.45

We cut our 2019 earnings forecast by 25%, in light of the weak 1H19 results. Meanwhile, we project narrower core net losses for 2020-21E, to better reflect the group’s continuous cost rationalization efforts moving forward. We reaffirm our SELL call on Star, with a lower TP at RM0.45 based on a 0.4x multiple (2SD below 3-year average) on the 2020E book value per share.

Source: Affin Hwang Research - 29 Aug 2019