To recall, Star Media Group Bhd’s first half of financial year 2017 (1HFY17) normalized Patmi came in at RM14.4 million (-62.4% year-on-year [y-o-y]). This was mainly attributable to lower contribution from the print and digital segment in view of poor market sentiments as well as start-up costs incurred for dimsum.my.
Despite some improvements in the macroeconomic numbers, the advertisement spending recovery remained soft. Management believes that advertisers are adopting a wait-and-see attitude. Thus, to partially address this concern, management is actively executing cost-saving measures.
With a sizeable cash reserve of RM326.7 million as at the second quarter of FY17 (2QFY17), management is actively seeking M&A opportunities. The acquisition target would preferable be within the media realm. However, do not discount the possibility of investment in non-core businesses which are already profit-making. In addition, management is open to investment opportunities beyond the local shores.
Due to the challenging business environment, the group’s cash-generating capability has reduced considerably. Coupled with depleting cash reserves, Streets do not expect future dividend payments to be attractive. Streets are of the view that it would be better to conserve cash to fund for earnings-accretive acquisitions.
In addition to excluding the earnings contribution from Cityneon, Streets further cut the earnings contribution from the print and digital segment. As a result, Streets are revising downwards their FY17 and FY18 earnings estimates by -53.9% and -67.4% respectively.
The group has embarked on its next digital transformation plan via the introduction of dimsum.my.
However, do not expect the initiative to be fruitful anytime soon. The group is in dire need of another earnings-accretive acquisition to replace Cityneon.
Streets are also concerned over the depleting cash reserve.
The group will need to balance between funding for M&A activities as well as maintaining its dividend commitment. In view of this, Streets are expecting future dividend payments to be capped.
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