This article first appeared in The Edge Financial Daily on December 4, 2018
Star Media Group Bhd
(Dec 3, 73.5 sen)
Maintain hold with a lower fair value of 73 sen: Star Media Group Bhd recorded a core loss after tax (LAT) from continuing operations of RM2 million in the third quarter ended Sept 30, 2018 (3QFY18), bringing the cumulative nine months ended Sept 30, 2018 (9MFY18) core profit after tax (PAT) to RM11 million.
This is after excluding a net gain of RM3 million, mainly from the disposal of one of its subsidiaries. Star Media Group’s 9MFY18 results were markedly below expectations at only 43% of our full-year forecasts and 39% of consensus estimates.
9MFY18 PAT more than doubled compared with that of 9MFY17 after excluding net one-off gains mainly from the disposal of Cityneon amounting to RM207 million.
The better PAT was due to improved cost management arising from its mutual separation scheme early retirement option exercise in the fourth quarter ended Dec 31, 2017 (4QFY17) and lower depreciation expenses from its print segment.
9MFY18 revenue declined 16%, mainly dragged by its print and radio segments impacted by a weaker advertisement expenditure (adex).
The print and digital segment’s revenue fell 16% as adex remained soft after advertisers turned cautious post-14th general election, despite the usually adex-catalytic Fifa World Cup.
Meanwhile, profit before tax (PBT) declined 33% impacted by losses from Star Media Group’s over-the-top platform dimsum and retrenchment costs of RM1.4 million in 3QFY18 associated with its printing operations’ cessation in Penang.
The Star’s circulation also continues to decline 19% to 176,000 copies in the first half of 2018, according to the Audit Bureau of Circulations Malaysia. However, digital advertising revenues were up 17% year-on-year. The radio segment’s revenue and PBT slumped 18% and 75% respectively amid a weaker adex environment.
As a result of holding more events in 9MFY18 compared with that in 9MFY17, the event and exhibition segment’s revenue surged 76%, while a better cost management boosted the segment to a PBT of RM2.2 million in 9MYF18 from a LBT of RM400,000 in the previous year.
Despite a series of restructuring exercises, we are “neutral” on the Star Media Group as we are still concerned that its digital, and event and exhibition segments would not be able to cushion its print and radio segments’ bleak prospects.
Further, the group lacks a growth component following Cityneon’s disposal, and monetising digital initiatives remains challenging amid high competition. — AmInvestment Bank, Dec 3