Review

• Star’s 9MFY19 core net profit of RM5.4mn (-56.0%) accounted for 65.9% and 52.2% of ours and consensus full-year estimates respectively. We deem this to be within expectations as we expect a stronger 4QFY19 driven by higher adex spend during the year-end festivities.

• YoY. 9MFY19’s revenue and core net profit declined 19.9% and 56.0% to RM239.9mn and RM5.4mn, dragged by the group’s core print as well as radio businesses which continued to suffer from declining adex on traditional mediums alongside the structural shift in media consumption to digital platforms. We note from the group’s results announcement that revenue from the digital business grew 15% but we believe contributions are smallish and not meaningful.

• QoQ. Revenue grew 2.4% to RM79.6mn, driven by higher contributions from the radio and event and exhibition businesses. However, net profit fell 84.9% to RM0.3mn as the group’s core print business continued to suffer from declining adex and slipped into the red with a LBT of RM0.3mn. Meanwhile, the group remained in healthy financial standing with a robust net cash position of RM387.7mn or 52.5sen/share (11.5% QoQ, 24.5% YoY).

Impact

• While 9MFY19’s results met our expectations, we take the opportunity to lower our FY20/FY21 forecasts on expectations for the challenging operating environment to prevail into the near-term. Citing Nielsen Media Research’s data, we observe that the decline in industry print adex has yet to bottom out with 9MFY19’s of -17.8% only a slight moderation from 9MFY18’s of -20.2%. In this regard, upon lowering our FY20/FY21 adex forecast by 10%, we cut our FY20/FY21 earnings estimates by 79.8%/76.1% to RM1.9mn/RM2.4mn.

Outlook

• In the near-term, we expect Star to remain challenged by the on-going structural decline in traditional adex. That said, the downside risk could be cushioned by continued efforts to drive growth from the digital space. Among others, in addition to digital advertising and its OTT service dimsum, management also sees opportunities to monetise via the imminent introduction of a paywall on The Star Online.

Valuation & Recommendation

• Following our earnings cut and pegging to a lower P/BV of 0.4x (previously 0.5x), we arrive at a lower TP of RM0.45/share (previously RM0.57/share). Reiterate Sell as we opine the stock lacks earnings catalyst at this juncture. Key upside risks include accretive M&A’s and the unlocking of asset value while key downside risks include an unprecedented decline in adex.

Source: TA Research - 29 Nov 2019