CIMB Research:
KUALA LUMPUR: CIMB Equities Research has upgraded its rating for Star Media Group Bhd
from Hold to Add and raised its target price from 72 sen to RM1.20 as the market is under appreciating the value of the group's real estate.
It said on Monday it raised the TP based on a 40% discount to revised net asset value (RNAV) which was in line with its property sector mean.
“While the print industry is in an irreversible decline, the market is underappreciating the value of Star’s real estate, which could be unlocked once the company diversifies into property development/investment,” it said.
However, the downside risks are a longer gestation period for non-traditional media ventures and the property market staying muted for an extended period of time.
To recap, on Aug 27, CIMB Research highlighted that the Star Media Group was planning to diversify into property development and/or investment to monetise its 48 acres of real estate.
“Our previous estimate of a RM216.2mil (29 sen a share) revaluation gain was conservative, at best, as we assumed a 5% compounded annual growth rate (CAGR) from the last revaluation date for each property,” it said.
In the report, CIMB Research looked at the latest transactions in contiguous areas to assess the true value of Star Media Group’s landbank.
It pointed out that based on the latest transaction records compiled by the Valuation and Property Services Department and various international third-party property valuers, it estimated the market values of vacant land and properties owned by Star Media Group amounted to RM519mil, or 70 sen a share.
“This estimated value is over three times the properties’ book values of 22 sen/share. Therefore, we believe that the stock is grossly undervalued.
“We change our valuation basis for Star from price-to-book to RNAV to better reflect the lucrative assets held by the company,” it said.
CIMB Research said the stock was trading at 0.6 times FY18F P/BV, which was two standard deviations below its 10-year historical mean of 1.2 times.
“In spite of the sluggish print adex outlook, Star Media Group remains a profitable media company, supported by a strong net cash position of RM309mil or 42 sen a share as at end-June 2018,” it said.
It also said the share price was also trading at nine times FY19F price-to-earnings ex-cash.
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