STAR recently presented its digital ecosystem initiative in a briefing recently, which would leverage on its existing audience to create new revenue streams. In addition, growth in Dimsum could be spurred through potential partnerships. We are neutral on the initiative which requires a costly and possibly lengthy gestation. With its outlook further weighed down by the tepid key print segment, we maintain UNDERPERFORM and TP of RM0.600.

Clearer digital initiative. The group presented its initiative on developing its digital ecosystem to create new revenue streams through a more B2C-focused business model, compared to its traditional B2B business model. This would involve utilising artificial intelligence to analyse and enable targeted marketing to relevant audiences in accordance with their content consumption habits, potentially opening up cross-selling opportunities with its newly launched commerce platforms. These channels could also chalk up more advertising revenue assuming consumer consumption picks up. The group is expected to incur approximately RM40-50m in a period of 2-3 years in technical cost (software and hardware) for the digital initiative.

Potential partnership for Dimsum. Commenting on a recent article, management clarified that there are interests by potential investors for a stake in Dimsum. However, management emphasised that any tie-in with strategic partner should only add synergistic value to expand its OTT service beyond its current market (Malaysia, Singapore and Brunei). We believe this could potentially include Telco players which could bring on-board large database in other regional markets while also complementing prospective partners as a value-added service to their existing platform, due to its highly concentrated mobile viewership. However, there are yet to be any solid pursuits on the table with such deals at early discussion phase.

For now, we are neutral on STAR’s new digital initiative as its current digital segment only contributed c.10% of its print and digital segment’s revenue. While we opine that there could be long-term synergies and income to be enjoyed, with gestation costs to be incurred, the abovementioned initiatives could dent near-term performance.

Overall, given that the group remains to be predominantly involved in the print and news distribution space, we remain pessimistic on the group’s immediate outlook. This is premised on the increasing demand, adoption and competition in the digital media space. This in turn skews advertisers to be more inclined towards advertising on these platforms, undermining the group’s core traditional print segment. Additionally, as consumer spending looks to be softened by unfavourable macroeconomic factors, advertisers may be more selective of their advertising channels. We keep our earnings forecast unchanged for now, as we believe that the above has been sufficiently accounted for.

Maintain UNDERPERFORM and TP of RM0.600. Our TP is based on an unchanged P/NTA of 0.52x on a rolled over FY20E NTA/share of RM1.11. The P/NTA valuation is based on -1.5SD below its 3-year mean, in considering of its soft outlook ahead. Key upside risks to our call include: (i) higher-than-expected adex revenue, and (ii) betterthan-expected margins following various cost initiative plans. Key earnings downside risks include: (i) persistent weakness in the print adex outlook, and (ii) longer-than-expected gestation period for its OTT venture and future M&As.

Source: Kenanga Research - 14 Jun 2019