Counting on New Initiatives to Deliver

Star’s outlook for print division is expected to remain challenging, given the soft adex sentiment in Malaysia and dwindling hardcopy circulation. We are comforted that management has been active in seeking new revenue streams, among others, implementing a paywall for Star Online and beefing up dimsum’s ancillary income. Nevertheless, we reckon these initiatives will need a long gestation period before having a significant bearing on the group’s earnings. With no immediate catalysts in sight, we reiterate our SELL call on Star Media, with an unchanged TP of RM0.45.

Undertone Remains Fragile for Print Segment

According to Nielsen Media Research, newspaper adex showed no signs of improvement, with 8M19 adex down 18% yoy to RM1.3bn (8M18: RM1.5bn), driven by cautious ad spending and shift to digital platforms. Similarly, hardcopy circulation continues to dwindle on the back of shifting reading preference toward online reading through digital/mobile channels.

Paywall Expected to be Introduced for Star Online

The management indicated that a paywall would be introduced for Star Online. While we acknowledge that a paywall is inevitable in the current challenging environment, we believe this could negatively impact monthly users of Star online, which currently stand at c.8m.

Pinning Hopes on OTT Platform

Elsewhere, the group is looking to further expand dimsum’s reach in the ASEAN region, after launching it in Singapore and Brunei. We are positive on dimsum’s expansion plans given the increasing popularity of OTT platforms. However, the cash burn rate is expected to remain elevated to acquire users in the initial stages before the venture could turn profitable.

Maintain SELL With An Unchanged TP of RM0.45

We make no major changes to our earnings forecasts at this juncture. Although we are comforted by the various new initiatives, we believe these are still very much in gestation period, and are unlikely to offset the decline from the traditional print segment. We remain fairly cautious at this point, given the lack of immediate catalysts and a persistent challenging environment. All in, we reiterate our SELL rating for Star with an unchanged TP of RM0.45, based on 0.4x (2SD below 3-year average) on 2020E book value per share.

Source: Affin Hwang Research - 17 Oct 2019