Investment Highlights

• We upgrade Star Media Group (Star) from SELL to HOLD but maintain its fair value at RM1.88/share based on SOP. This follows the recent selldown of its shares, resulting in its price dipping below our fair value.

• We believe the selldown was due to a lack of catalysts in the near term, following the sale of Cityneon as well as after the ex-date (27 Sep 2017) of a large dividend payment of 36 sen (30 sen from Cityneon's sale proceeds and an interim dividend of 6 sen). Moreover, the ailing newspaper circulation and print adex also add fuel to the fire.

• Last Friday, management has said that the group will be raising The Star daily newspaper's cover price from RM1.20 to RM1.30, effective 2 Oct 2017, while the price of its weekend newspaper will remain unchanged. This is expected to alleviate Star’s declining revenue only minimally as we estimate that circulation revenue from The Star daily accounted for a mere 5% of total sales in FY16.

• While this could improve FY17F revenue by ~0.4%, management has said that the objective of the exercise is to introduce new content and offer giveaways/vouchers, which would offset any positive impact from the higher selling price of the newspaper. Therefore, we are leaving our earnings forecast unchanged as the impact to bottom line is expected to be negligible.

• On a positive note, the MIER Consumer Sentiment Index (CSI) improved for the third consecutive quarter from 73.6 in 3QCY16 to 80.7 in 2QCY17. This signals a possible recovery in consumer spending and consequently adex, for the forthcoming quarters. Should the CSI breach above the optimism threshold (100), we may turn positive on the sector's adex outlook.

• Moving forward, prospects of Star look unappealing due to: (1) continuous decline in newspaper circulation amid increasing availability of digital content; (2) subdued adex outlook against the backdrop of weak consumer sentiment; and(3) lack of growth component after the disposal of Cityneon.

• In spite of unexciting prospects, we believe Star offers some value at the current price as well as decent dividend yield of 5%-7%, backed by a net cash level of RM223.6mil as of 30 June 2017.

Source: AmInvest Research - 2 Oct 2017