Star Media Group (Star) reported net loss of RM4m for 1QFY20 mainly dragged by lower revenue contribution from its Print division and higher operating expenses. Results were worse-than-expected than both ours and consensus’ full year net profit forecast of RM5.7m and RM3.2m respectively. Following this set of results, we slash our earnings estimates by 19%-300% for FY20-FY22F to forecast a net loss to account for the lacklustre adex environment which will likely be dragged further by the Movement Control Order (MCO) and the declining newspaper circulation. Our Neutral call on Star is maintained with a lower TP of RM0.37 (previously RM0.38) based on a P/BV multiple of 0.35x. On a side note, the group is currently sitting on a huge cash pile of RM398m which translates to a net cash per share of RM0.54.

• 1QFY20 revenue dropped by 20% YoY owing to the decline in Print & Digital segment (-21.5% YoY) to RM56.4m, mainly affected by the lower newspaper circulation and advertising take-up rates. In an effort to curb the spread of Covid-19, lesser events were held which caused the Events and Exhibition segment revenue to fall to RM2.9m (-45.4% YoY). On the other hand, Radio segment revenue increased to RM6.5m (+20% YoY) on the back of higher revenue from airtime production and digital sales.

• 1QFY20 Loss Before Tax (LBT). Star recorded a LBT of RM3.2m from a PBT of RM3.7m due to lower revenue and higher operating expenses as a percentage of revenue from 99.6% to 110% However, note that despite recording lower revenue, the Event and exhibition segment PBT margins improved (1QFY20: 36% vs 1QFY19: 31%) underpinned by better cost management.

• Poor earnings visibility in the near term. While Star’s digital platform is slowly gaining traction and has garnered a good following in Singapore, Indonesia and the Philippines, we remain cautious that the growth in its digital segments would not be able to mitigate the lower revenue from its traditional media segments. Furthermore, the weak consumer sentiment following Covid-19 will likely lead to a further decline in adex as we believe that advertisers will remain prudent by reducing A&P budget. Nevertheless, we expect the group to continue to focus on its digital segment to provide better monetisation opportunities and introduce several cost optimisation efforts which could lead to better earnings visibility in longer term.

Source: PublicInvest Research - 1 Jun 2020