• Star’s 9M20 revenue declined by 39.4% yoy to RM145.5m and posted a core net loss of RM51.6m (vs. core net profit of RM5.1m in 9M19) as all segments were impacted by Covid-19; however, revenue has gradually improved vs. 2Q20.
• In light of the disappointing 9M20 results, we now project a wider core net loss of RM63.5m/RM10.7m for 2020E/21E after taking into account lower ad spending and lower event and exhibitions held.
• Maintain SELL with a lower 12-month target price of RM0.27.

Losses narrowed qoq to RM21.4m

Sequentially, Star Media Group (Star) revenue increased by 53% to RM48.2m mainly due to higher contributions from the print & digital (+45.5% qoq) and radio broadcasting (+173.9% qoq), but partially offset by lower revenue from event and exhibition (-100% qoq). Star reported a PBT of RM33.1m in 3Q20 vs. a LBT of RM27.2m in 2Q20 due to the recognition of compensation income of RM50.5m for the late delivery of vacant possession of its investment property under construction. Excluding the one-offs, Star’s core net loss narrowed to RM21.4m in 3Q20 from core net loss of RM26.6m in 2Q20.

9M20 core net loss at RM51.6m – wider than expected

Star’s 9M20 revenue was lower by 39.4% yoy to RM145.5m due to weaker contributions across print & digital, radio broadcasting and event & exhibition segments. Revenue from all three main segments were adversely impacted by the Covid-19 pandemic as many advertisers were still cautious on ad spending for other business priorities and cancellation of events. For 9M20, Star posted a PBT of RM2.6m as compared to PBT of RM9.7m in 9M19, due to recognition of compensation income. After excluding one-off items, Star’s core net loss was at RM51.6m as compared to core net profit of RM5.1m in 9M19. The results were below our expectations due to weaker-than-expected performances from the print and event and exhibition divisions.

Maintain SELL rating with lower TP of RM0.27

In light of the disappointing results, we now project a wider core net loss for 2020/21E of RM63.5m/RM10.7m after taking into account lower ad spending and lower event and exhibitions held. Our 12-month target price for Star is reduced to RM0.27, based on a 2021E PBR of 0.25x (from 0.27x). Maintain our SELL rating on the stock. It has been a challenging year for the media industry due to the Covid-19 pandemic but the Group has embarked on various cost-cutting measures and restructuring some of the business units to re-strategize operations to cushion some of the impact. Despite this, we continue to expect the group to post losses in 2021 and see limited re-rating catalysts for the stock.

Source: Affin Hwang Research - 13 Nov 2020