INVESTMENT HIGHLIGHTS

• Star is looking at driving down operation costs, possibly staff costs which made up of more than 30% of revenue

• StarBiz Premium Plus is competitively priced, further widening its digital offerings

• Dimsum to focus delivery of niche content

• Maintain BUY with unchanged target price of RM1.80

Near-term focus to drive down cost. Star Media Group (Star) nearterm focus is to drive down operation cost. We view that one of the main focus areas would be staff costs. Based on 2016 annual report, the employee benefits amounted to RM287.3m. This represents 30.8% of FY16 revenue of RM932.1m. Our view also corroborates with online sources which suggest that the group is looking to cut 200 jobs via separation scheme and early retirement option.

Further foray into the digital realm. Recently, Star launched StarBiz Premium Plus, a subscription-based collaboration between StarBiz with The Wall Street Journal (WSJ) and The Business Times (TBT), Singapore. The package is available at RM25 per month or RM250 per year. The package is competitively priced as individual subscription for WSJ and TBT would costs USD370 per year and SGD34.90 per month respectively. We view that the offerings is timely as WSJ has recently (i.e. in October 2017) stop publishing the Asian and European print editions. Thus, the package would appear more attractive to WSJ followers. Moreover, we opine that corporate reader would likely have a lower churn rate.

Expanding the content library for dimsum. While dimsum’s financial performance has yet been disclosed, the management guided that its performance is on track with the internal target. The strategy of providing niche content has been working in favour of the group. Currently, there is two big pool of audience for the Chinese and Thai dramas. The group is sourcing more regional content to further expand its offerings (refer to figure 1). On another note, the group is also engaging with local major telcos to further promote dimsum and provide additional payment avenue to subscribers (refer to figure 2).

Impact. No change to our earnings estimates.

Target price. We are maintaining our target price of RM1.80 per share based on DDM valuation methodology (discount rate of 6.1%).

Maintain BUY. Despite the tough market condition, the group has been managed to remain profitable due to the various marketing efforts implemented as well as effective cost management. Couple with sizeable cash reserve, we view that the group would still be able to provide an attractive dividend yield of 8%. Note that we have imputed a conservative dividend payment to cater for the group’s investment opportunities to grow its bottomline. All factors considered, we are maintaining our BUY recommendation on the stock. We view that the current share price weakness presents an opportunity for investors to accumulate on the stock.

Source: MIDF Research - 4 Dec 2017