· Star Media Group’s (Star) subsidiary Cityneon Holdings Ltd (Cityneon) has entered into an agreement with Hasbro Inc. to obtain exclusive rights to use the Transformers brand in its exhibitions.

· In an SGX filing last Wednesday, the agreement was entered into by Cityneon’s wholly-owned subsidiary, Dayspring Entertainment Pte. Ltd (Dayspring). This allows it to use the Transformers brand for the development, staging, production and promotion of exhibits globally (except for Japan and the city of Indianapolis).

· Cityneon added that the 7-year agreement is expected to start its first exhibition in 2016. The agreement will also give Cityneon the rights to develop and manufacture the merchandise based on the Transformer exhibits, and also the right to advertise and sell the merchandise at their exhibition venues.

· The deal comes on the back of Star’s recent acquisition of Victory Hill, which owns the right to operate, market and promote Marvel brand exhibits for display. That deal concluded last September.

· While the Victory Hill acquisition included a first-year SGD2.8mil profit guarantee on its price-tag of SGD21mil, we are unable to quantify the impact of the Transformers deal and await further details, though it is not expected to impact 2015 earnings.

· Overall, we view that this Hasbro deal is in line with Star’s long-term strategy to diversify its revenue streams and leverage on Cityneon’s innovative exhibition capabilities.

· However, Cityneon being part of Star’s Events segment, has seen fluctuating margins in the past few years. This continues to be evident in the last quarter, where Events registered a YTD loss of -RM3.6mil. Apart from 2012, its profit margins in the past 5 years were between 0.2% and 8.1%. Events contributed to 12% of PBT in FY14.

· Going forward, Star needs to monitor its costs in the Events division to avoid it being a drag on its overall earnings. We foresee greater risks as Star diversifies its events portfolio into international-scale markets.

· Maintain HOLD on Star with an unchanged FV of RM2.30/share.

Source: AmeSecurities Research - 20 Nov 2015