This article first appeared in The Edge Financial Daily on January 3, 2019
Star Media Group Bhd
(Jan 2, 67 sen)
Maintain underperform with an unchanged target price (TP) of 60 sen: Star Media Group Bhd has raised its newspaper cover price by 30 sen effective Jan 1, 2019. We are neutral on the news as the price hike could be offset by the potential lower circulation volume and advertising expenditure (adex) revenue. With no immediate earnings catalyst, we are keeping our “underperform” call on the stock. Maintain TP at 60 sen.
Star Media has raised the cover prices of its daily newspaper by 30 sen or 23% from RM1.30 to RM1.60 and Saturday and Sunday editions by the same quantum to RM1.80 (from RM1.50 previously). The last time the group increased the cover price was in October 2017 with a 10 sen increase (from RM1.20 to RM1.30) in its daily newspaper. Note that the group’s circulation revenue accounted for around 16% (or RM42 million) of the total turnover of RM258 million in the first nine months of financial year 2018 (9MFY18).
We are neutral on the news as the increase in circulation revenue (as a result of the sharp cover price hike) could be offset by a potential decline in circulation volume and weak adex revenue ahead. According to the latest data from the Malaysian Audit Bureau of Circulations (ABC), the total circulation of Star Media’s physical daily newspaper has continued its declining trend (since the second half of 2014 [2H14]) and recorded 176,000 in 1H18 (versus 202,000 in 2H17 and 217,000 in 1H17). The group’s weekend version circulation volume, however, has not been shared in the ABC since 1H17 but is expected to see a similar circulation volume (like its weekday version) based on the historical trend. The waning Star Media’s circulation volume trend is in line with the industry performance, where the country’s total circulation has dipped to 2.08 million (in 1H18) from 3.2 million in 2H14 as a result of change in consumer habits, behaviour and lifestyle, coupled with new technologies that continue to reshape the media industry.
The higher newspaper cover price would provide lesser reasons for readers to stick with the traditional platform and they may seek alternative source (like digital media) to get similar news content. Should Star Media’s newspaper circulation volume continue to deteriorate, it will have a negative impact on the group’s adex given advertisers’ tendencies to seek higher publication media medium to publicise products.
We maintain an “underperform” rating as the group’s bread-and-butter print segment continues to face challenges with diminishing adex revenue. Our TP is maintained at 60 sen, based on targeted FY19 price-to-net tangible assets of 0.52 times, implying an unchanged -2 standart deviation below its three-year mean. — Kenanga Research, Jan 2