Results

1QFY13 core earnings (adjusted for RM1.6m impairment) fell by 14% to RM27.7m (3.75 sen/share), missing estimates by making up only 17% and 16% of ours and consensus’ estimates respectively.

Deviations

1Q earnings are seasonally weaker, and we believe that the anticipated strong Adex spent for the general election will make up for the current quarter’s earnings shortfall.

Dividends

None. Dividends usually declared in 2Q and 4Q.

Highlights

YoY… Revenue declined by 4%, seen across all divisions, as Adex spending was held back due to uncertainties related to the general election. Although expenses remained relatively well contained, losses occurred in the Radio, Event and TV divisions. Overall, core earnings fell by 14%.

QoQ… Revenue fell by 25% sequentially due to seasonally strong 4QFY12, while core earnings fell by 21%. Gestation period still not over… Star’s new investments are still undergoing their respective gestation period which has resulted in losses for the radio and TV divisions. For the event division (CityNeon), management is undertaking cost rationalisation plans to turn it around while more exhibitions are planned for Perfect Livin’.

Risks

• Weak Adex growth;
• High newsprint cost;
• Threat of new players;
• Depreciation of RM vs. US$; and
• Regulatory risk.

Forecasts

Unchanged. Subject to revision after analyst briefing.

Rating

HOLD

• Positives: (1) Recovery in the global economy; (2) Strong domestic consumption which reinforces business confidence to spend on Adex. (3) Quicker gestation period for its new business venture.
• Negatives: (1) Continued deterioration in the Euro debt crisis which dampens business confidence.

Valuation

• TP maintained at RM2.77 based on required dividend yield of 6.5%. We believe that the company has sufficient cash to maintain its dividend payment regardless of earnings. Subject to revision after analyst briefing.

Source: Hong Leong Investment Bank Research - 23 May 2013