By Xavier Kong
Several analysts are of the opinion that Star Media Group Bhd will be facing challenging times ahead due to weak consumer sentiment as well as a flattish adex estimate for the rest of FY15 and continuing into FY16, according to separate reports published following an analyst briefing held by the media group.
The weak consumer sentiment was attributed to several factors, namely inflationary cost pressures, the weakening Ringgit, the political issues in Malaysia, potential subsidy removals, as well as the slowdown in the economy. These factors have led to Hong Leong IB downgrading Star to a “hold” recommendation, with the research house also lowering their target price to RM2.31.
“For the immediate term, we see Star’s earnings being affected by the cautious adex growth outlook caused by weak consumer sentiment,” said HLIB.
However, PublicInvest Research continues to like the group despite the headwinds, with the belief that the group will be able to sustain its performance due to its “entrenched position” in the English daily and higher contribution from the event, exhibition, interior and thematic segment.
“We expect the group to maintain 18 sen dividend payment for this year, translating to an attractive dividend yield of 7.6%, premised on its strong cash generating capability,” said PublicInvest, noting that the group should still be able to pay that dividend from its annual cash flow even if the group’s print adex drops by up to 5%.
“However, in order to maintain dividend payout from free operating cash flow, we estimate dividend payment would be reduced to 15 sen if the group’s print adex drop to 10%. At 15 sen per share, the stock still offer a decent yield of 6.4%,” added PublicInvest, who maintains their “outperform” rating as well as their target price of RM2.78.
TA Securities also maintained their “sell” recommendation on Star and also lowered their target price to RM2.15 per share, with the research house lowering its margins. TA remains pessimistic on consumer sentiment for the sector moving forward, despite Star’s management guiding that there will be single digit growth in the group’s 4Q15.
“The group’s outlook remains challenging, as the weak market sentiment is expected to persist into 2016. As the bulk of its revenue is derived from the print segment, this will continue to weigh on results in the foreseeable future. Although it has made positive strides by diversifying into the exhibition business, via Victory Hill, contributions from the company remain small to the overall bottom line,” said TA, noting that the group had reported a disappointing set of results driven by weakness in its core print and digital segment.
CIMB IB maintained their “hold” recommendation, adjusting their target price to RM2.36 from RM2.37, while Kenanga IB maintained their “market perform” call as well as their target price of RM2.36.
“Star was directly and negatively affected by the depreciation of the ringgit against the US dollar, as management explained that the weaker ringgit essentially wiped out the positive benefits of declining newsprint prices in the third quarter 2015. This comes on the heels of weakened print and digital demand, as shown by the segment revenue that fell by 7.9% year-on-year from RM526 million in the first nine months 2014 (9M14) to RM484 million in 9M15,” said CIMB IB, noting that the results were “no surprise”.
Kenanga IB also errs on the side of caution, putting forth a more conservative estimate that the group will record only RM157 million with a 15 sen dividend per share, rather than the group’s aspirations of RM160 million in pre-tax profit with a total annual dividend per share of 16.5 sen.
As of 4.15PM, Star’s shares were last traded at RM2.38, up 2 sen on slim volume.
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