This article first appeared in The Edge Malaysia Weekly on December 16, 2019 - December 22, 2019
WITH Star Media Group Bhd being valued at only RM328.4 million as at last Thursday — a far cry from its glory days in the mid-2000s when it commanded a market capitalisation of over RM2 billion — the question that comes to mind is, is the company ripe for privatisation by its major shareholder, the Malaysian Chinese Association (MCA)?
The media group’s share price has shed 33.1% over the last one year, from 66.4 sen on Dec 11, 2018, to 44.5 sen last Thursday. The last time the stock hit such a low level was between March and April of 1999.
It is also worth noting that the stock is trading at only 0.4 times the media group’s net asset value per share of RM1.11 as at Sept 30, 2019.
But analysts that The Edge spoke to do not think MCA, which owns 43.1% of Star, will take the privatisation route.
“Ideally, considering its current valuation, Star should be privatised. But does MCA have the money for it? Star is generating good dividends for the political party when its other businesses are either loss-making or making meagre profits,” remarks an analyst.
Star is seen as a cash cow for MCA, which received RM349.71 million in dividends from the media group between 2013 and 2017. Last year, however, the amount dropped to RM9.54 million based on a dividend of three sen per share.
Another analyst says he is sceptical about Star getting any privatisation offer because its operations are shrinking — its annual revenue has been declining since 2016 and there is no sign of a reversal yet. “At 0.4 times its price-to-book value, we think Star is just about fairly valued and may not be compelling enough for a buyout,” he adds.
According to a market observer, if a privatisation were to take place, the million-dollar question would be: at what price? “We know that now, Star’s value is in its assets and not its business operations. So, should the shareholder want to privatise it and pay below book value, it would be pretty unfair to the minority shareholders.”
It is no secret that Star’s worth now lies in its land and buildings. Based on its 2018 annual report, the company’s properties have a net book value of RM155.72 million, which translates into 21.3 sen per share.
Of the media group’s 18 properties, the 17-storey office building, Menara Star, has the highest net book value of RM35.86 million. It was last revalued in 2001. However, according to CGS-CIMB Research’s Oct 26, 2018, report, the building is likely to be worth RM80 million.
Star’s properties in Penang, which comprise an office block and creative and events hub, a newsprint warehouse and regional printing plant, are estimated to have a market value of RM118 million, according to CGS-CIMB Research.
The media group also has four pieces of freehold industrial land that measure a total of 633,161 sq ft and have a net book value of RM43.27 million. Three of them are located in Bukit Jelutong, Shah Alam, while the fourth is in Bayan Lepas, Penang. The total market value of these tracts is estimated at RM121.71 million.
Star has buildings and land in Pahang, Perak and Sabah, and overseas in the UK and China as well.
And as at Sept 30, 2019, it had a handsome cash pile of RM387.7 million, equivalent to 52.5 sen per share.
Granted, the company is rich in assets but its business outlook is deemed bleak by many because, like elsewhere in the world, the country’s media industry has been hard hit by a structural shift and declining adex.
“I think the prospects for Star are dim. It does not matter whether or not it is seen as a credible paper because it has little competitive advantage from an advertiser’s perspective. There is no reason for advertisers to move their advertisements there because its content is similar to what you can find on other websites,” comments an analyst.
An analyst with a local research firm says he does not think there will be an improvement in adex for the media group, considering the proliferation of digital platforms that are more targeted and effective, cheaper even, suiting the needs of advertisers.
Star has undertaken various initiatives to diversify its sources of income, such as organising events and exhibitions and offering subscription video on demand, but these contribute less than half to its total revenue.
According to analysts, while the new initiatives will help boost the media group’s earnings, they are still in the early stage and are unlikely to offset the decline in income from the traditional print segment.
In its third quarter ended Sept 30, 2019, Star’s net profit plunged 84% year on year to RM250,000 while revenue fell from RM91.12 million to RM79.58 million.
Bloomberg data shows that there are currently one “buy”, six “hold” and three “sell” calls on Star. The average target price for the counter is 45 sen.
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