KEY INVESTMENT HIGHLIGHTS

• 1QFY20 financial performance plunged in negative territory of -RM3.9m which came in below our expectation

• Larger decline in revenue of -21.8%yoy, mainly from its mainstay Print segment

• Subdued business environment is expected to continue to cause a slowdown in ad-spend in the intermediate term

• Fortunately, cash reserve remains healthy which will support the group’s focus on executing its digital strategy

• Maintain NEUTRAL with a revised TP of RM0.34

Below expectation. Star Media Group Bhd’s (Star) 1QFY20 results reverted to the red with normalised losses of -RM3.9m as compared to profit of RM3.6m in the corresponding period of last year. This came in below ours and consensus expectations. The group’s dismal financial performance was caused by larger-than-expected revenue decline (- 21.8%yoy), mainly from the print segment (refer to table 1).

Covid-19 to dampen ad-spend. The group’s 1QFY20 revenue fell by -21.8%yoy to RM65.8m, mainly from its print segment which led to a LBT of -RM4.5m as compared to PBT of RM3.6m in 1QFY19. Coupled with the movement control order (MCO) and dismal economic conditions brought by the Covid-19 pandemic, we opine that businesses across most sectors would be reducing and/or deferring their market budgets. This would create further downward pressure on the advertising revenue. As a result, we are now expecting the group to remain in losses in FY20 before rebounding into positive territory in FY21.

Strong balance sheet to support the group’s initiatives. We opine that the group’s net cash position of about RM400.0m as of 31 March 2020 remains a strong backstop for the group to focus on its digital strategy (i.e The Star Online and Dimsum). Coupled with continuous cost rationalisation exercises, the group’s evolving cost structure could also partially mitigate the decline in revenue going forward. Thus, we posit that this enables the group to be in a better position to ride through the Covid-19 pandemic headwinds. In addition, we also do not discount the possibility of the group to undergo earnings accretive developments with its unused properties.

Source: MIDF Research - 1 Jun 2020