ANALYSTS remain cautious on Star Media Group Bhd’s execution of its diversification strategy in response to the Covid-19 pandemic and the movement control order (MCO), which have exacerbated the group’s results for the first quarter of its 2020 financial year.
TA Securities analyst Wilson Loo noted that the measures taken to cushion the impact of the MCO included the offering of Covid-19 special ad packages, the offering of delivery listings on print and digital at affordable rates for SMEs hit by the MCO, and the introduction of webinars and virtual education and property fairs.
AmInvestment Bank (AmInvest) noted that other services included offering paid research services such as market analysis and end-to-end research by leveraging data and analytics from its platforms, and pushing its marketplace platforms such as Kuali Shop, dimsum’s Watch & Shop, and Star Mall.
“We believe that Star Media’s move to adapt its strategy to ride on opportunities arising from the pandemic and offer more digital offerings is necessary, with other media players having done so as well in order to offset the decline in traditional media segments,” said AmInvest.
“We are positive on the group’s move to diversify its revenue streams in light of its challenging operating environment. However, we remain cautious on the monetisation of its digital initiatives as Covid-19 is expected to hasten declines in traditional media segments and impact its financial performance.”
Loo, however, holds the view that the newer revenue streams have a lack of scale, which would lead to near-term contributions being insufficient to overcome the ongoing structural challenges faced by the group’s core print business.
The TA Securities analyst also pointed out that Star Media had reported a core net loss of RM4 mil for its 1QFY20, and believes that near-term ad expenditure will be weaker on a year-on-year (y-o-y) basis.
“For 2H20, management expects the operating environment to remain challenging, albeit cautiously optimistic as the group has seen adex recovering following the easing of the MCO,” said Loo.
“That said, with businesses likely to tighten marketing spend in the face of a looming global recession, we expect the strong recovery momentum to largely moderate in the months ahead and thus, for adex in the near term to remain weaker on a y-o-y basis.”
However, Star Media management has also guided that it will be pursuing mergers and acquisitions in both related and unrelated businesses, backed by its net cash position of RM378 mil.
“We note that while the group has come across interesting prospects, demanding valuations sought by the vendor has often been the stumbling block,” said Loo.
Moving forward, AmInvest noted that Star Media will be venturing further into e-commerce, and that the group does not deny that cost-optimisation initiatives such as manpower rationalisation is still in the cards.
TA Securities maintains a sell call on Star Media with an unchanged target price of 26 sen, citing a lack of earnings catalyst for the group. AmInvest maintains an underweight call as well as an unchanged fair value of 31 sen.
At 10.05am, Star Media’s shares were last done at 35.5 sen, up half a sen, with 103,100 shares traded. – July 3, 2020
