Results

Broadly In-line: Excluding non-recurring Voluntary Separation Scheme (VSS) expenses of RM9.58m, 1QFY14 core PATAMI was flat YoY (3.50sen/share), making up 18% of both ours and the consensus’ estimates.

Deviations

1Q results tend to be the weakest as Adex spending is skewered towards the end of the year. Historically, 1Q earnings accounted for ~ 18-22% of full year earnings for the past three years.

With FIFA World Cup and Commonwealth Games 2014, we are expecting stronger earnings in quarters to come.

Dividends

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

Highlights

YoY. Revenue dropped by 4%, mainly due to lower advertising revenue caused by seasonal factors such as Chinese New Year holidays, which contributed to lower publication days. The decline in Print segment of 11% YoY is largely due to weak consumer sentiments as a result of uncertainties in the economy and MH370 incident. However, we believe that the MH370 impact is only temporary.

The revenue growth of Radio, Event, and TV segment increased YoY. The losses from these segments are lower due to better cost management. Revenue growth of Radio segment (+2%) surpasses the industry’s revenue growth of - 2%.

Higher operating expenses. Core earnings fell at a faster pace due to higher costs attributed to the VSS expenses. However, excluding non-recurring VSS expenses of RM9.58m, 1QFY14 core PATAMI was flat YoY.

We expect upcoming major international events mentioned above will have a favourable impact on Star’s earning. However, note that the sporting events are predominantly TV-driven and Star’s TV segment only amount to ~1% of overall revenue.

Risks

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

Forecasts

Unchanged pending more information from analyst briefing on 28 May 14.

Rating

HOLD

For the intermediate term, we see Star’s earnings being impacted by the cautious Adex growth outlook, gestation period of new business ventures and cost optimisation plan. Hence, we are reiterating our HOLD call on the company.

Valuation

Maintain TP at RM2.15 based on required dividend yield of 6.5% as we maintain our estimated dividend of 14 sen/share. Subject to revision after analyst briefing.

Source: Hong Leong Investment Bank Research - 22 May 2014