INVESTMENT HIGHLIGHTS

• Turn to loss in 3QFY18 as revenue record a steep decline of -23.5%yoy to RM91.1m

• Cumulative 9MFY18 normalised earnings of RM11.3m came in below ours and consensus expectations

• No dividend declared yet thus far, anticipating lower dividend payment of 4sen per share in 4QFY18

• Maintain NEUTRAL with a revised target price of RM0.69

Loss-making quarter. Star Media Group Bhd’s (Star) 3QFY18 normalised loss came in at –RM1.7m as compared to a normalised earnings of RM16.0m as at 3QFY17. This was mainly premised on the steep decline in revenue to RM91.1m (-23.5%yoy).

Below expectations. Cumulatively, 9MFY18 normalised earnings improved by +95.7%yoy to RM11.3m mainly due to better cost management following the MSS/ERO in 4QFY17 and lower depreciation expenses from the Print segment. Nonetheless, the improvement in the group’s 9MFY18 financial performance failed to keep pace with ours and consensus expectations, accounting for merely 32.9% and 39.4% of full year FY18 earnings estimates.

Impact to earnings. We are reducing FY18 and FY19 earnings estimates to RM17.6m and RM23.0m as we cut our revenue assumption primarily from the print segment.

No dividend announced yet. The group did not announce any dividend for 9MFY18. However, we are reducing both our FY18 and FY19 dividend estimates to 4sen per share (previously 6sen per share). This is in view of the group’s weak ability to generate operating cash. Moreover, the group’s cash level has reduced to RM313.2m from RM480.1m as at 4QFY17 as it significantly pared down its borrowings. Note that as at 3QFY18, the total borrowings have reduced remarkably to RM1.7m from RM102.5m as at 4QFY17.

Target Price. Subsequent to the reduction in our dividend assumptions, we are reducing our target price to RM0.69 per share based on dividend discount model (DDM) valuation methodology (Discount rate of 6.1%).

Maintain NEUTRAL. While the group start the year on a positive note, we view that there is limited earnings upside moving forward. Star’s earnings would be mainly supported by additional advertising income derived from major sports events as well as effective cost management initiatives. We are also concern on the group’s declining cash balance. This would impact the group’s ability to distribute dividend on a longer term horizon as the group’s cash generating ability remains under jeopardy. On another note, there is not much traction on the group’s effort to execute earnings accretive acquisitions. We opine that the longer the delay, the budget allocation for the proposed acquisition would reduce gradually. Given the lack of significant positive catalysts, we are maintaining our NEUTRAL recommendation on the stock.

Source: MIDF Research - 3 Dec 2018