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

- Star’s 1HFY15 core net profits came in within expectations at RM61.5mil (-0.4% YoY), accounting for 42% of our and 43% of consensus full-year estimates. This is after stripping off one-off RM2.2mil acquisition costs incurred by Cityneon’s acquisition in Victory Hill Exhibition Pte Ltd. Historically, 1H profits ranged between 38%-51% of fullyear estimates.

- Management declared a first single-tier dividend of 9sen/share (1HFY14: 9sen). We deem this to be in line with management’s guidance and our DPS expectations of 18sen/share this year.

- Due to the tough adex environment after the implementation of GST in April, Star’s key contributing print segment saw its 1HFY15 revenue suffer a steep decline by 8.1% YoY. However, 1HFY15’s print earnings was unchanged YoY, which we attribute to the effect of lower direct costs mostly stemming from savings from the Voluntary Separation Scheme (VSS) completed in FY14.

- Star’s other adex-based segments, radio and TV saw declines in revenue. However on a positive note, the previously loss-making radio segment had remained in the black for the second quarter in a row, since the full impairment on Capital FM’s licence in FY14.

- Star’s event segment, consisting of Cityneon and I.Star Ideas Factory, saw higher revenue due to the recognition of revenue during the period. However, it recorded lower profits due to fewer events held and higher direct costs.

- Star will continue to focus on building its digital media presence and expand its events opportunities in Asean markets (e.g. Vietnam, Myanmar). Among its latest achievements in digital is ePaper subscriber count passing 100,000 last month.

- While we are positive on its diversification initiatives, print and digital will continue to be the cash cow for Star – contributing >90% of earnings in the medium term.

- We remain cautious on Star’s outlook for the rest of the year given the current weak consumer sentiment.

- The stock should continue to be supported by its decent dividend yield of 7.5%. The stock currently trades at 12.5x FY15F PE, compared with Media Prima’s 8.5x and Media Chinese’s 8x.

Source: AmeSecurities Research - 19 Aug 2015