RAM Ratings has reaffirmed the respective AA1/ Stable and P1 ratings of Star Media Group Berhad’s (STAR or the Group) RM750 million MTN Programme (2011/2026) and RM750 million CP Programme (2011/2018).

Published on 20 June 2016

RAM Ratings has reaffirmed the respective AA1/ Stable and P1 ratings of Star Media Group Berhad’s (STAR or the Group) RM750 million MTN Programme (2011/2026) and RM750 million CP Programme (2011/2018). The facilities have a combined limit of RM750 million. The reaffirmation of the ratings is based on the Group’s operating performance coming in within our expectations and the maintenance of key financial metrics at robust levels.

STAR’s performance in 2015 had been affected by weak consumer sentiment and a challenging adex environment, amid the GST implementation, currency volatility as well as plunging crude oil prices. Based on RAM’s estimates, overall real adex (TV and newspapers) contracted by 7% in 2015. The Group’s ad revenue declined 8.5% as advertisers pulled back adex and media consumption saw a gradual shift towards the digital space. However, effective cost cutting measures undertaken by the Group offset the weak performance, resulting in a flat operating profit before depreciation, interest and tax (OPBDIT) y-o-y.

The ratings are also supported by STAR’s dominant market position. The Group’s flagship daily, The Star, continues to lead the local English-language newspaper market in terms of print advertising, enjoying a non-discounted adex share of close to 66% in 2015. Including the e-paper, it is also the most circulated and read English daily in Malaysia.

As at end-December 2015, STAR stayed in a strong net-cash position. However, its adjusted funds from operations (FFO) debt cover ratio deteriorated to 0.41 times for the year (end-December 2014: 0.65 times), albeit still robust, due to the substantial operating lease commitments of Victory Hill Exhibitions Pte Ltd – STAR’s recently acquired exhibition production and distribution company. Lower operational cashflow for the year also contributed to the weakening coverage. The Group’s adjusted gearing ratio also came in weaker at 0.34 times (end-December 2014: 0.24 times) owing to the higher level of operating leases. STAR’s gearing and FFO debt cover ratios deteriorated further in 1Q FY Dec 2016 consistent with a weaker performance and a higher debt level.

Although the Group’s FFO have trended downwards in line with the declining print industry, its financial profile is envisaged to stay robust. We expect these ratios to rebound in FY Dec 2016 as a result of a lighter debt load following the repayment of the Group’s RM100 million MTN in May. Additionally, STAR’s liquidity profile is deemed superior; its short-term debt stood at RM208.29 million relative to RM643.48 million of cash and bank balances and RM550 million of unutilised debt facilities. The Group is expected to stay in a net-cash position as it has no sizeable capex or acquisition plans in the near term.

The ratings are, however, moderated by the continual shift in media consumption (and by extension, adex) away from traditional media towards the digital space. As digital media becomes increasingly popular in the digital age, traditional media platforms (print, TV and radio) face growing competition. STAR has, accordingly, seen a decline in real print adex at an average rate of 6% over the past 5 years – consistent with the industry trend. Moreover, STAR is susceptible to economic cyclicality and newsprint price volatility while some of its recently acquired new-media assets remain loss-making. As disseminators of news and information, the Group is further exposed to litigation and licensing risks.

Media contact
Chan Yisze
(603) 7628 1111
yisze@ram.com.my