Results

Within our expectations: Excluding the VSS expense of RM11.5m in 1HFY14, Star reported a core PATAMI of RM67.1m (9.10 sen/share), making up 46% and 47% of ours and consensus estimates respectively.

Deviations

We are expecting stronger earnings for 3Q and 4Q (Adex spending is skewered towards the end of the year). Thus, we consider earnings to be largely in line. Traditionally, 2H contributed 49-62% of full year earnings.

Dividends

Total net dividend of 9 sen/share declared; higher than previous corresponding period’s payout of 6 sen/share. Exdate 24-Sept-14 and payment on 17-Oct-14.

Highlights

1HFY14 results review… Revenue increased by 3% mainly on the back of higher revenue contribution from projects completed by Cityneon. Its Print division fell 3% mainly attributed to the pullback of advertising spending in 1Q caused by economic uncertainty and MH370 incident.

The Event segment was the saviour/hero as overall PBT jumped from RM0.9m in 1HFY13 to RM6.7m due to better gross margins from Cityneon. This more than offset the disappointing print segment performance (affected by VSS) and resulting in 7% increase in PAT.

As a result of higher operating expenses from the VSS, PBT contracted slightly by 2%. Excluding the VSS expenses, the core earnings increased 23% yoy from RM54.6m to RM67.1m.

2QFY14 results review… QoQ: Following a weak performance in 1Q due to seasonality, its revenue rebounded by 30%, predominantly lifted by the Print and Event segment.

YoY: We see an increase in revenue from the print, radio and event segment. Also, thanks to their efficient cost management, the radio segment experienced a narrower loss.

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 on 20- Aug-14.

Rating

HOLD

Despite the cautious Adex growth outlook, we see better prospect for Star based on their prudent cost management coupled with narrowing losses from TV, and its strong balance sheet with net cash position. Maintain our HOLD call on Star.

Valuation

Maintain TP at RM2.33 based on required dividend yield of 6.0% as we retain our dividend estimates of 14 sen/share for FY14. Subject to revision after analyst briefing

Source: Hong Leong Investment Bank Research - 19 Aug 2014