Star reported a core net loss of RM4.1m in 1Q20 vs. a core net profit of RM2.5m in 1Q19, which was below our and consensus expectations. The weaker performance was due to losses at the print & digital and radio divisions. As such, we now project a core net loss of RM5m for 2020E (from a RM1.1m core net profit previously) and cut our 2021/22E core earnings forecasts by 30.5%/31.4%, after taking into account lower contribution from the print and radio divisions. After the earnings revisions and rolling forward our valuation horizon to 2021E, our target price is lowered to RM0.30 (from RM0.28). Given the 18% potential downside to our new TP, we downgrade Star to SELL (from HOLD) as we continue to be cautious on the economic outlook.

1Q20 Core Net Loss at RM4.1m, Below Expectations
Star Media Group (Star) 1Q20 revenue was lower by 20.4% yoy to RM65.8m, underpinned by declines seen in print & digital (-21.5% yoy) and event & exhibition (-45.4% yoy) segments but partially mitigated by higher revenue from radio (+19.9% yoy). Star posted a LBT of RM3.2m in 1Q20 vs. a PBT of RM5.7m in 1Q19, mainly attributable to losses from the print & digital and radio divisions. The weaker performance was partly due to lower adex as advertisers remained cautious on spending given the softness in Malaysian economy amid the Covid-19 pandemic. Excluding one offs, core net loss for 1Q20 came in at RM4.1m vs. a core net profit of RM2.5m in 1Q19. The results were below our expectations due to weaker-thanexpected performances from the print and radio divisions.

Outlook Remains Challenging
Sequentially, 1Q20 revenue declined by 13.5% qoq to RM65.8m and a core net loss of RM4.1m was recorded vs. a core net profit of RM2m in 4Q19. The weaker qoq performance was mainly due to lower contribution from the print division. We expect the subsequent quarters to remain soft and challenging for Star. Adex would likely be affected on the backdrop of a soft consumer sentiment, compounded by the Covid-19 situation. On the other hand, we believe the Group will continue to develop its digital transformation initiatives as well as improving costs and operational efficiencies.

Source: Affin Hwang Research - 1 Jun 2020