Results

• Star’s FY14 core earnings (excluding VSS expense of RM11.5m in 1HFY14 and impairments of RM26.0m) inched up slightly by 2% yoy. This came in in-line with our expectations but slightly above consensus, accounting for 104% and 108% of HLIB and consensus full year estimates.

Deviations

• None.

Dividends

• Declared second interim of 6 sen/share and special tax exempt dividend of 3 sen/share. Ex-date 27-Mar-2015, Paydate 17-Apr-2015. This brings total DPS to 18 sen/share, equivalent to 7.2% dividend yield.

Highlights

• FY14 results review… Poor business condition and lower consumer demand has depressed revenue slightly by 1% yoy. Excluding VSS expense and impairment losses on goodwill, radio license, film rights and investment in associates which amounted to RM37.5m, core earnings increased 4% yoy (FY14: RM148.9m vs. FY13: RM142.9m).

• Event, exhibition and thematic segment proves to be the earnings contributor as it achieved 18% and 65% yoy growth in revenue and PBT, respectively. Cityneon managed to secure more projects and I.Star Ideas Factory bagged 2 additional shows in FY14.

• VSS expense and impairments losses of RM37.5m were the culprit for higher expenses (+4% yoy). We believe moving forward, Star would be able to record lower expenses attributed by its efficient cost saving initiatives and absence of these one-off items.

• 4QFY14 results review… Revenue increased 14% qoq but dropped 3% yoy. Yoy, all segments recorded double digit revenue declines. Fourth quarter performance was negatively affected by the presence of impairments. As a result, PBT declined 31% qoq and 47% yoy.

• While we think 2015 would be a slow year for Media as a whole, but with Star’s efficient cost savings efforts, we expect it should be manageable for the media group.

Risks

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

Forecasts

• Unchanged. Also introduced FY17 forecast figures.

Rating

BUY

• 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 as well as strong cash flow.

Valuation

• Maintain TP of RM2.73 based on unchanged targeted dividend yield of 5.5%.

Source: Hong Leong Investment Bank Research - 2 Mar 2015