KEY INVESTMENT HIGHLIGHTS

• 3QFY19 normalised earnings fell by -142.9%yoy to RM0.7m due to lower revenue from print business

• 9MFY19 normalised earnings of RM6.2m (-45.8%yoy) came in below ours and consensus expectations

• EBIT margin continues to experience contraction as revenue declines

• Earnings and dividend per share revised downward for FY19, FY20 and FY21 in view of tough transition ahead

• Downgrade to SELL with an adjusted TP RM0.36

3QFY19 financial performance barely breakeven. Star Media Group Bhd’s (Star) 3QFY19 normalised earnings plummeted by - 142.9%yoy to RM0.7m due to worsening performance from its print segment. The group’s 9MFY19 normalised earnings also fell by - 45.8%yoy to RM5.1m. This came in below our and consensus expectations as it accounted for merely 51.8% and 59.6% respectively of the full year FY19 earnings estimates. This was mainly attributable to the group’s continued poor financial performance from the print and radio segment whereby the profit before tax dropped by -69.2%yoy and -45.4%yoy to RM6.5m and -RM0.6m respectively.

Thinning profit margin. 9MFY19 revenue for the group continues to be on a downward trend as it dropped further -19.9%yoy to RM239.9m. This was predominantly due to declining print revenue as advertisers move towards digital platforms. Meanwhile, the less-than-expected decline in operating expenses by -17.3%yoy and a drop in other operating income by -26.7%yoy has resulted in the poor EBIT performance (-89.9%yoy). Consequently, this led to contraction in the group’s 9MFY19 EBIT margin by -4.3ppts yoy to 0.6%. We opine that the outcome of the cost cutting initiatives remains limited at this juncture and the group would need to place more emphasis to grow its revenue.

Source: MIDF Research - 29 Nov 2019