• Star’s 6M20 revenue decreased by 39.3% yoy to RM97.3m and reported a core net loss of RM30.1m (vs. core net profit of RM3.6m in 6M19) mainly due to softness in the advertising spending from advertisers
• In light of the disappointing 6M20 results, we now project a wider core net loss of RM40.5m (from RM5m core net loss) and cut our 2021-22E core earnings after taking into account lower ad spending for both print and radio divisions
• Maintain SELL With a Lower 12-month Target Price of RM0.28

6M20 Core Net Loss at RM30.1m – Worse Than Expected

Star Media Group (Star) 6M20 revenue was lower by 39.3% yoy to RM97.3m due to weaker contributions across print & digital, radio broadcasting and event & exhibition. The drop in revenue was mainly due to lower ad revenue as many advertisers were still cautious on spending due to the effects of COVID-19 pandemic (especially during the Movement Control Order period). Star posted a 6M20 LBT of RM30.9m vs. a PBT of RM5.2m in 6M19, due to losses at the print & digital and radio broadcasting divisions. Meanwhile, lower profits from the event & exhibition division were due to cancellation of events in 1H20 caused by the pandemic. The 6M20 core net loss, after excluding oneoff items, was at RM30.1m as compared to core net profit of RM3.6m in 6M19. The results were below our expectations due to weaker-than-expected performances from the print and radio divisions given the weaker ads spending.

Losses Widened Qoq to RM26.6m

Sequentially, Star’s revenue declined -52.1% to RM31.5m, mainly due to a decline in contribution from print & digital (-48% qoq), radio broadcasting (-68.7% qoq) and event and exhibition (-94.6% qoq). Star reported a higher LBT of RM27.2m in 2Q20 vs. a LBT of RM3.2m in 1Q20 as most businesses chose to hold back on their ad spending for other priorities. Excluding the one-offs, Star’s core net loss widened to RM26.6m in 2Q20 from core net loss of RM3.5m in 1Q20.

Maintain SELL Rating With Lower TP of RM0.28

In light of the disappointing 6M20 results, we now project a wider core net loss of RM40.5m (from RM5m core net loss) and cut our 2021-22E core earnings after taking into account lower ad spending for both print and radio divisions. Our 12-month target price for Star is now lower at RM0.28, based on an unchanged 2021E PBR of 0.27x. Maintain our SELL rating on the stock.

Key Risks

Key risks to our call include i) major restructuring plans that would improve its long-term prospects, ii) sharp improvement in adex revenue, iii) substantial increase in hard-copy newspaper circulation and iii) higher-than-expected earnings contribution from the digital and non-print segment.

Source: Affin Hwang Research - 28 Aug 2020