Results 

• Excluding  VSS  expense  of  RM11.5m  in  1HFY14,  Star’s 9MFY14 core earnings inched up by 3% to RM101.4m (13.8 sen/share), accounting for 71% of both ours and the streets’ full year forecasts.

Deviations

• We  expect  stronger  earnings  in  4Q  as  it  tends  to  be  the strongest quarter due  to the year- end  festivities. Hence,  we consider earnings  to be relatively  in line.

Dividends

• None. Usually declared  in 2nd and 4th quarter.

Highlights 

9MFY14  re sults  review…  Revenue  declined  by  0.4%  to RM732.8m  (vs.  RM736.2m  in  9MFY13)  caus ed  by  lower sales from the  print  and  radio segments which dropped 6% and 1%, respectively.    However, the impact was moderated by the event and  TV segments which improved by 21% and 28%, respectively.

Star continues to keep its costs well controlled.   Its expenses reduced by 2% to RM628.6m.  On 7 November, it announced a  proposed  disposal  of  one  of  its  loss  making  subsidiary, Red  Tomato  Sdn  Bhd  which  will  improve  its  bottom  line going  forward.    We  believe  the  group  will  continue  with  its cost control measures to better enhance  its performance.

3QFY14  results  review…  QoQ:  Revenue  fell  10%  mainly due  to  lower  advertising  revenue  from  print  and  radio segments  as  advertisers  continue  to  remain  cautious.  This translates into lower core earnings of RM34.3m, a decline of 17% QoQ.

With the exception of the event division which improved  9% yoy  to  RM58.8m  in  3QFY14,  all  segments  recorded  lower revenues  and  segmental  profits .  The  decline  in  other segments  was  largely  caused  by  weaker  consumer sentiments  as  a  result  of  subsidy  rationalisation  and anticipation of  GST implementation.

Risks

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

Forecasts

• Unchanged. Subject to revision after  analyst briefing on 21 -Nov -14.

Rating

UNDER  REVIEW

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

Valuation

• Stock  Rating under  review  with  TP  remains  unchanged  at RM2.55 based on required dividend yield of  5.5%. Subject to revision  after analyst briefing.

Source: Hong Leong Investment Bank Research - 20 Nov 2014