KUALA LUMPUR (April 6): Star Media Group Bhd’s plan to exit its subscription video-on-demand service business — dimsum entertainment — by end-September is viewed positively by analysts who said this would allow the group to exit the loss-making business while allowing it to reallocate resources optimally to its main business operations.
Following this, the analysts have raised their respective target prices for Star Media’s stock.
AmInvestment Bank Research (AmResearch) upgraded its rating on the stock to “buy” (from “underweight”), pegging a higher fair value of 53 sen per share from 27 sen per share.
Hong Leong Investment Bank (HLIB) Research maintained its “hold” rating for Star Media with a higher target price of 45 sen from 32 sen while MIDF Research raised its target price to 36 sen from 33 sen as it also maintained its “neutral” call on the stock.
AmResearch noted in a report today that it believes Star Media’s “prospects will improve” following the cessation of dimsum entertainment.
“We are positive on the group’s move as we believe that dimsum’s losses dragged Star’s performance over the years, weighing down the group’s print and digital segment, which was already being impacted by the media sector’s structural decline as customers switched to digital alternatives. We are hopeful that Star would be able to strengthen its core business and expand into other non-core ventures to diversify its revenue streams,” said AmResearch.
On financial impact, it projected the media group to post narrower losses for the financial year ending Dec 31, 2021 (FY21) and FY22. AmResearch expects the group to turn profitable in FY23 as it accounts for better margin assumptions for the print and digital segment following dimsum’s cessation.
It estimated Star Media to generate annual core losses of RM7.1 million and RM2 million for FY21 and FY22 respectively, and projected an annual profit of RM4.1 million in FY23.
Star Media slipped into the red as it registered an annual net loss of RM19.72 million or loss per share of 2.71 sen for FY20 against a net profit of RM5.68 million or EPS of 0.77 sen for FY19. Revenue fell 37.83% to RM196.42 million from RM315.93 million a year before.
“While we are still cautious on Star’s prospects due to the lack of diversification from traditional media segments, we anticipate the performance of its print, radio, and events segment to recover following an improved consumer sentiment leading to recovery in advertising expenditures (adex) and as the country has begun its Covid-19 vaccination rollout,” said AmResearch.
HLIB Research also believes that the latest move by Star Media is positive.
It pointed out that over-the-top (OTT) space is very competitive and Star Media has not been able to gain significant traction since its launch in November 2016, with only 1.1 million subscribers as at Dec 31, 2019, in which the research house noted that the number is inflated as it includes subscribers as well as free users.
Following the anticipated cost savings from this exercise, HLIB Research said its FY22 loss forecast would narrow to RM19.4 million from RM29.2 million previously.
While it leaves its forecast unchanged for FY21 as the termination will only be completed in the third quarter this year (3Q21).
“In view of this development which would help reduce Star's losses, we raise our P/NTA target from 0.35 times to 0.5 times (roughly -1.2 standard deviation [SD] below three-year mean).
“We view this move by the group as a good start in its restructuring and cost optimization efforts. The recent changes in the senior management of the group could potentially bring fresh perspective to the group’s business and may be able to drive it in a new business direction. However, we reckon that more will need to be done for the group to turn around,” said HLIB Research.
Nonetheless, it added that downside support would come from its net cash per share (NCPS) of 48 sen.
Meanwhile, MIDF Research said its target price of 36 sen (from 33 sen) is derived from a discount rate of 11% against the backdrop of “lingering uncertainties in the adex environment”.
Despite still incurring losses, MIDF Research said the group’s continuous efforts to optimise cost and to remain agile by planning new projects, could aid the group as the industry contends with pandemic driven challenges moving forward.
“We estimate a dividend of 30 sen in FY21 with potential turnarounds in the digital segment and adex revenue. We opine that the group will be able to weather challenging business transitions, given the healthy cash balance of more than RM300 million as of FY20,” it added.
Star Media's share price was unchanged at 42.5 sen at the time of writing and its market capitalisation stood at RM314 million. There were 1.42 million shares traded.