- 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 RM34mil for 3QFY14, bringing total 9MFY14 earnings to RM90mil. Stripping off the one-off VSS expense of RM11.5mil incurred in 2QFY14, the group recorded core net profit of RM101mil (+3% YoY) for 9MFY14.

- We deem the result to be within expectations, accounting for 71% of both our and consensus’ full-year estimates, as 4QFY14 earnings would be relatively stronger due to seasonality.

- As expected, no dividend was declared for the quarter. We maintain our 18sen DPS assumption, as management had earlier guided that the 9 sen/share payout in the first half would likely be repeated if the group matches its earnings last year.

- As cautioned, Star’s 3QFY14 core net profit dipped by 17% QoQ. We suggested earlier that the good performance in 2QFY14 would be a poor indicator to Star’s full-year earnings for FY14. This was due to the MH17 incident that took place during the quarter, where corporate and government agencies toned down the Raya and National Day celebrations as a sign of respect.

- On a YoY basis, 9MFY14 core net profit improved marginally by 3%. Print revenue declined by 6% YoY amid weak consumer sentiments due to the MH370 and MH17 incidents, fuel price increase, and interest rate hike over the year. This led to advertisers cutting down on advertising spending.

- However, this was offset by stronger performance for its event segment, where pretax profit grew two-folds to RM11mil for 9MFY14. This came on the back of additional projects completed by Cityneon with better gross margins, and two additional shows held by Perfect Livin’.

- While we remain 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 remain cautious on the group’s outlook for the rest of the year, and the first half of next year, as the implementation of GST may dampen consumer sentiment further.

- The stock currently trades at 11x FY15F PE, compared with Media Prima’s 12x and Media Chinese’s 9x.

Source: AmeSecurities