Upgrading: Fairly Valued

Star’s 9M19 core net profit of RM5.1m (-55% yoy) came in below our and market expectations, accounting for 57% and 50% of the respective 2019 estimates. In view of the downbeat results, we cut our 2019 earnings forecast by 23%, while keeping our projection of losses for 2020-21E on elevated operational costs. Nevertheless, given the recent sharp correction in the share price, some value is emerging at the current level of 0.4x 2020E P/BV, in our view. Also, it is worth noting that its cash holding is currently tracking ahead (117%) of its market cap. As such, we are upgrading Star to a HOLD (from SELL) albeit with a slightly lower 12-month TP of RM0.44.

9M19 Core Earnings Down 55%, Below Expectations

Star’s 9M19 revenue posted a decline of 20% yoy to RM240m, largely on the back of declines seen in the print & digital (-19% yoy) and radio (-19% yoy) divisions. The weaker performance was mainly due to lower adex as advertisers remained cautious on spending. Stripping out one-offs, core net profit came in at RM5.1m, down 55% yoy. This was below our and consensus expectations, accounting for only 57% and 50% of the respective 2019 estimates. The variance to our forecast was largely due to higher-than-expected operational costs.

Revenue Trended Higher Sequentially

3Q19 revenue was marginally higher qoq (+2.4%) at RM79.6m. Continued contraction in print & digital revenue (-3.4% qoq) was offset by better performance from the radio (+17% qoq) and event (>100% qoq) segments. In tandem, core net profit was higher at RM1.5m (+53% qoq).

Cash Holding at 117% of Market Cap

It is worth noting that Star’s net cash position stood at RM387.7m (or RM0.53 per share) as at end-Sep 2019, equivalent to about 117% of Star’s current market capitalisation of RM332m. On top of operational cash inflows, the cash position was also boosted by the successful calling on bank guarantees amounting to RM50m (recorded under payables) with regard to the ongoing litigation between Star and Jaks Island Circle Sdn Bhd for the delivery of vacant possession for a property in Seksyen 13, Petaling Jaya.

Source: Affin Hwang Research - 29 Nov 2019