We came away from its analysts’ briefing feeling cautious. The group is eyeing revenue streams expansion with its paywall so far showing positive traction. That said, we believe this might not be sufficient to weather through the lull in publishing and advertising caused by recent movement controls. Meanwhile, operational restructuring will be maintained to optimise costs. Maintain UNDERPERFORM and TP of RM0.300.

Building more pipelines. The group has been busy in expanding its digital presence with the development of more accessible mobile platforms of its existing portfolio (i.e. StarProperty, iBilik, Kuali). Its recently introduced paywall seems to be garnering a strong subscribership base since inception in March 2020, touting over 75k subscribers as of May 2020, according to management. Recall that the Star Online now implements limited access to certain web articles, exclusive to members of the RM9.90/month plan (introductory rate of RM1.90 for the second month). While we are encouraged by the take up to buffer declining print sales, it is unlikely that it will cushion the shortfall from physical distribution. That said, management views this as a complementary revenue stream as it still sees relevance in its bread-and-butter traditional newspaper channel. Meanwhile, the group has also embraced conducting more virtual fairs in place of physical ones held back by the MCO.

The group opines that the increase in digital traffic across its platforms will enhance its data analytics capabilities to allow better cross-selling and more efficient target marketing for advertisers. Especially spurred by larger homebound readership during the MCO, the total number of unique visitors of 21m for Star Online in March 2020 should be larger in the months ahead.

Acquisitions a steady process. Previously boasting a RM300m war chest for potential acquisitions, management presented that it will take its time to carefully consider its options, evaluating potential synergistic benefits. We believe any decisions could be more digital-centric given the diminishing performance of physical print. Consolidation of smaller print publishers could also be possibility to add to the group’s market share and online contents.

Bracing for the storm. Given the change in landscape brought by the MCO, we anticipate the group to face strong headwinds as demand for physical print was parched and advertisers are seeing cutbacks as a means to conserve their own cashflow against the economic deceleration. Against these top-line pressures, the group looks to keep cost rationalisation exercises going. Even with this, management describes that content quality will always be in mind, being its main consumable to customers. As far as its digital ventures goes, management aspires to keep capex low by tapping into in-house expertise with its product development. That said, we anticipate that these measures may not save the profitability for FY20, as economic recovery is also not expected to be an immediate process.

Post-update, we leave our assumptions unchanged.

Maintain UNDERPERFORM and TP of RM0.300. Our valuation is based on an unchanged 0.30x FY21E P/NTA which is 1.5SD below mean level. We believe this has sufficiently weighed in the bleak outlook for the group coupled with the lack of dividend prospects in the near-term. Although the company’s solid cash pile and books could tide it through the difficult times ahead, we anticipate stock sentiment to be curtailed especially as results come to light.

Key risks to our call include: (i) higher-than-expected adex revenue, and (ii) better-than-expected margins following various cost initiative plans

Source: Kenanga Research - 3 Jul 2020