PETALING JAYA: Star Media Group Bhd’s stock has been upgraded to an add by CGS-CIMB Research with the company’s earnings outlook raised significantly after the company’s 2018 financial year results.
CGS-CIMB raised the earnings per share of SMG for financial year 2019 and 2020 by between 43%-49% as the company’s ongoing cost-rationalisation exercise should provide more breathing space for SMG’s margins from financial year 2019 onwards.
“The fading relevance of print is also a blessing in disguise as Star is now able to reduce its newsprint cost, which soared to an all-time high of around US$750 per tonne at end-2018,” it said in a report after SMG’s 2018 financial results were announced.
The broker raised the target price for SMG’s share to RM1.23 a share as the company has enough in its war chest to endure a major transformation.
The broker noted that SMG’s net cash of RM298.5mil, amounting to 40.5 sen a share, and land bank valued at an estimate RM519mil, or 90% of its market cap, are positives for the media company.
Downside risks for the company are lower-than-expected cost savings and weak growth in digital adex.
In breaking down SMG’s 2018 financial results, CGS-CIMB said revenue from the fourth quarter from the third quarter was up 2.1% mostly from the re-energised events and exhibition segment.
“Revenue for its core print and digital business fell by 0.9% qoq, deviating from the trend of strong ad spend in print media during the year-end holidays. Removing the RM16mil mutual separation scheme expenses, Star made core net profit of RM8mIL in 4Q18 versus a core net loss of RM318,000 in 3Q18,” it noted.
Although SMG’s dividend of 3 sen a share was below the broker’s expectations, core net profit for 2018 exceeded expectations.
It said SMG’s core net profit for 2018 was 48% above its forecast and after stripping out the tax relief, SMG’s core net profit made up 112% of its forecast.
“It should be noted that the 61% year-on-year plunge in FY18 core net profit was because a major chunk of FY17’s earnings (around RM24.5mil) came from its former subsidiary Cityneon.
“Finding its way in the digital world, SMG is revamping its business model and capital structure to establish the digital media sphere as a key pillar. The group will further rationalise its print-related fixed expenses in FY19F.
“We also like that Star has introduced in-programme advertising on dimsum, diversifying its digital advertising revenue sources, as too many players are already vying for the crumbs left by Facebook and Google in the online banner advertising market,” it said.