- We maintain our HOLD rating on Star Publications (Star) with an unchanged fair value of RM2.40/share, based on our DCF valuation.

- Star’s 64%-owned Singapore-listed subsidiary, Cityneon Holdings, has acquired Victory Hill Exhibitions Pte Ltd from Philadelphia Investments Ltd for SGD21mil. Cityneon is the event and exhibition arm of Star.

- Victory Hill, which is based in the US, is an exhibition production and distribution company focused on delivering educational and interactive exhibitions. It also holds the right to produce and operate the travelling exhibition “Marvel’s The AVENGERS S.T.A.T.I.O.N”.

- Under the SPA, the vendor provided a net profit guarantee of SGD2.8mil for the first year, whereby any shortfall will be reimbursed. Cityneon achieved a net profit of SGD2.3mil for FY14. The vendor will be entitled to receive 30% of the amount in excess of the guaranteed profit and the target profits for the second and third year.

- The consideration comprises a cash consideration of SGD10mil, 45mil shares issuance amounting to SGD9mil and deferred payment of SGD2mil which is conditional upon Victory Hill meeting the SGD2.8mil profit target. Given the guarantee, the acquisition values Victory Hill at a PE of 7.5x, a fair valuation considering Cityneon’s current trailing PE of ~9x.

- Additionally, Cityneon is also proposing to undertake a 1- for-1 non-underwritten renounceable rights issue at an issue price of SGD0.18 per share, representing a 31% discount to Cityneon’s share price of SGD0.26 on 1 April. This is expected to raise up to SGD15.1mil to fund the cash consideration and working capital of Cityneon. The amount attributable to Star would be SGD10.2mil (RM27.5mil).

- Subsequent to the rights issue and shares issuance to the vendor, we estimate Star’s shareholding in Cityneon to be diluted to 51% from 64% currently.

- We are neutral on this, as contributions from Cityneon are still immaterial for now. We estimate Cityneon to contribute ~4% to Star’s bottom line for FY15, with the inclusion of the new business. The RM28mil to subscribe to the rights issue is also not a concern, given Star’s net cash position of RM352mil as at December 2014.

- The stock currently trades at an FY15F PE of 12x, compared with Media Prima’s 12x and MCIL’s 10x. We believe the share price will be supported by the decent dividend yield of 7%, based on our assumption of 18 sen/share.

Source: AmeSecurities Research - 3 Apr 2015