This article first appeared in The Edge Financial Daily on October 30, 2018

KUALA LUMPUR: Real estate could now be the prized assets in Star Media Group Bhd, as the print media business is suffering from digital disruption that results in declining advertising revenue.

The group’s estimated market value of its real estate, including vacant land, is as much as RM519 million, or 70 sen per share — an amount that is slightly below its market capitalisation of RM539 million based on yesterday’s closing of 73 sen, according to CIMB Research.

The estimate value of RM539 million is based on the latest transaction records compiled by the Valuation and Property Services Department and various international third-party property valuers. “This estimated value is over three times the properties’ book values of 22 sen per share. Therefore, we believe that the stock is grossly undervalued,” said CIMB Research, which has upgraded the stock to an “add” rating last Friday with a higher target price of RM1.20.

CIMB Research stated that the potential gains on assets revaluation could raise the group’s property net book value by 127%. “Our previous estimate of a RM216.2 million (29 sen per share) revaluation gain was conservative, at best, as we assumed a 5% compound annual growth rate from the last revaluation date for each property,” it said.

Star is planning to diversify into property development to monetise its 48 acres (19.42ha) of real estate, more than half is undeveloped land. Noting Star’s Penang properties as the pearl in the company’s land bank, Shanaz said it has a collective area of 483,153.8 sq ft (811.1 acres), or 23.1% of the group’s total land bank area. Star has 77,534 sq ft of vacant industrial land in Bayan Lepas, which this land tract is contiguous to the printing plant that was recently closed down.

CIMB Research noted that the Penang state government plans to expand Bayan Lepas via a series of land reclamations, which should add more activities to the district. This should theoretically see land value appreciate in tandem, it added.

Another rerating catalyst, said CIMB Research, is the new government’s policy to eliminate political interference in the media may be passed into law, forcing MCA to reduce its 43.1% stake in The Star. CIMB Research sees four possibilities that could act as a rerating catalyst for The Star, which are management buyout; a new strategic shareholder’s entry; sale to multiple entities; or carving out the media business. Star’s share price was at a low of 72 sen last Friday — the lowest level since late 2001. Nonetheless, CIMB Research expects the group’s property assets could help it to regain lustre.