Besides enhanced corporate governance and best practices, Kenanga Research anticipates the deployment of SMG’s sizeable war chest for accretive mergers and acquisitions, divestitures or ventures.
PETALING JAYA: With valuations still attractive, and the potential of asset monetisation, Kenanga Research has upgraded the Star Media Group Bhd
(SMG) to an “outperform”.
The research firm has also raised the media stock’s target price to 55.5 sen from 31.5 sen previously.
It liked the stock due to its strong balance sheet and proactive plans to future-proof earnings via a five-year transformation journey, while efforts to transition to digital media is gaining traction.
Kenanga Research sees a couple of catalysts following the entry of The Edge Communications Sdn Bhd and its owner, Tan Sri Tong Kooi Ong, as a substantial shareholder of SMG recently.
Besides enhanced corporate governance and best practices, it anticipates the deployment of SMG’s sizeable war chest for accretive mergers and acquisitions (M&As), divestitures or ventures.
“We believe that odds have now improved for SMG’s assets to be monetised effectively. Correspondingly, this is reflected in its current valuation that has re-rated upwards to an average of 0.6 times financial year 2024’s price to net tangible asset (FY24 P/NTA) over the past three months.
“This translates to an upgrade versus its three-year historical average of 0.4 times,” Kenanga Research said in a report yesterday.
Nevertheless, it said SMG’s valuations remain attractive at this juncture given that it is currently trading below the sector average of 0.9 times P/NTA.
“Furthermore, valuations have now normalised to 0.5 times P/NTA after having peaked at a high of 0.72 times back in April. Moving forward, we believe there is still upside to valuations as the catalysts have just started to unfold,” added the research house.
Kenanga Research said that SMG owns a substantial portfolio of investment assets, which also includes valuable land bank for potential development.
“In FY22, the book value of these assets amounted to RM143mil, which translates to 22% of net assets.
“Furthermore, there is upside to this figure, given that valuations on SMG’s key assets were last conducted in 1995-2004. In addition, SMG is sitting on a huge cash pile of RM368mil with zero borrowings.”
Nevertheless, Kenanga Research said investors would only be willing to ascribe a premium to the assets if their value is unlocked via accretive M&As, divestitures or ventures.
Tong emerged as a substantial shareholder of SMG in late April and holds a 5.42% stake.
He is one of the top-three shareholders in SMG after the MCA with 43.2% stake, while the Employees Provident Fund owns 4.1%.
