Highlights

• We attended Star’s FY14 briefing, chaired by its Managing Director/CEO, Datuk Seri Wong Chun Wai and the management team. Below are the key takeaways:

• To recap, FY14 has been the year of consolidation for Star - VSS expense, impairments and rationalisation of its lossmaking segments (Faces at end Sept-14, Shanghai in Nov- 14 and Red Tomato in Dec-14). Despite the challenges, Star managed to deliver its earnings. Its cost control has been exceptionally well executed throughout each individual segment.

• Radio segment has finally turned into the black, charting PBT of RM1m in the fourth quarter as oppose to losses in the first three quarters in FY14. For the print and online segment, Star continues to be in the lead position for both ecirculation and its English traditional print. We were also updated on strategic partnerships with a local media group in order to push up its circulation/readership and advertising revenue.

• On to the digital property side, the group will be concentrating on making its property online platform (Propwall, iBilik, and Starproperty.my) outperform their competitors. It gained healthy traffic flow since Aug-14, and as at end of Dec-14, became number one in terms of total number of unique visitors.

• We anticipate more upside from the event, thematic and exhibition segment. Cityneon plans to expand into new markets in Southeast Asia such as Vietnam, Cambodia, and Myanmar with more projects to be completed in China. It is expected to secure more projects from Universal Studios theme park in Beijing. We believe the group should be able to replicate the success of the event segment in FY14 due to more secured projects, exhibitions, and education fairs.

• Management retains their cautious outlook on Adex growth for 2015. Expect 1H15 to be quiet due to advertisers being cautious before the implementation of GST. That said, we believe Adex will pick up in 2H15 as Malaysians become accustomed to GST.

Risks

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

Forecasts

• Unchanged.

Rating

BUY

• We continue to favour Star for its efficient cost management, narrowing losses from TV and its healthy 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 - 4 Mar 2015