-  We maintain our HOLD call on Star Publications (Star) with an unchanged fair value of RM2.47/share, based on our DCF valuation.

-  Star reported earnings of RM39mil for 2QFY14 (+140% QoQ, +38% YoY), bringing total 1HFY14 earnings to RM56mil (+2% YoY). Stripping off the one-off VSS expense of RM11.5mil, Star recorded core net earnings of RM67mil (+23% YoY) for 1HFY14.

-  We deem the result to be within expectations, accounting for 47% of both our and consensus’ full year estimates.

-  Star declared a single tier dividend and special tax exempt dividend totaling 9 sen/share (1HFY13: 6 sen/share). We are positively surprised by the payout, as we anticipated a flat payout of 6 sen. The group appears to be well on track on meeting consensus’ expected dividend payout of 15 sen/share for the full year.

-  The decent performance in 2QFY14 came mainly on the back of a recovery in the print and digital segment, where revenue grew by 4.4% YoY and 18.5% QoQ. We believe that this was due to the normalising of the earlier negative sentiment surrounding the MH370 incident.

-  Furthermore, the print segment’s PBT margin improved from 22.5% to 24.8% in 2Q, as the group’s cost cutting measures in the previous quarters took effect.

-  The group also continued to record improved performance for its event segment and achieved a pretax profit of RM6.7mil for 1HFY14, compared to RM0.9mil in the previous year. This came on the back of additional projects completed by Cityneon with better gross margins, and additional shows held by Perfect Livin’.

-  However, we remain cautious on the outlook for the rest of the year, as the expectation of another round of fuel subsidy rationalisation may dampen consumer sentiment further. Moreover, the effect of the MH17 incident, which happened in July, has not been reflected in the current result.

-  While we are positive on Star’s many initiatives to reduce its dependency on income generated from its print business, these initiatives are unlikely to contribute meaningfully in the near term, in our opinion.

-  We leave our numbers unchanged for now, pending an analysts briefing on 20 August. The stock currently trades at 13.5x PE of FY14F earnings, compared with Media Prima’s 12.7x and Media Chinese’s 9.8x.

Source: AmeSecurities