News

• Star announced that its 64.08% sub-subsidiary, Cityneon Holdings Limited has entered into Sale and Purchase Agreement with Philadelphia Investments Pte Ltd to acquire Victory Hill Exhibitions Pte Ltd (VHE) for a purchase consideration of S$21m to be financed by both cash and shares.

• Cityneon proposed to undertake a non-underwritten renounceable rights issue to partially fund the purchase consideration for the acquisition – 88.5m shares at issue price of S$0.18 for each Rights share.

• The purchase consideration will consist of S$10m in cash, and issuance of 45.0m new shares at an issue price of S$0.20 per share. Additionally, deferred payment of RM2m and incentive payment shall be paid no later than 31st July 2016 in cash after achieving certain amount of profit (equal to or greater than S$2.8m).

• By acquiring VHE, Star’s Cityneon will automatically gai n the exclusive right to provide exhibition services for Marvel. Financial Impact

• We understand that the acquisition will enable Star’s Cityneon to further expand thei r businesses overseas as well as providing additional revenue stream for the group.

• Based on our calculation, Cityneon’s EPS before acquisition of VHE is RM0.026. After acquisition and issuance of shares, Cityneon’s EPS should amount to RM0.038.

• With the issuance of shares and ri ghts issue, Star’s stake will be diluted from 64.08% to 51.1%.

• Pre-acquisition, based on its FY14 figures, Cityneon contributes circa S$1. 5m to Star’s bottomline which represents 2.7% of the group’s FY14 core earnings.

• Post-acquisition and Rights issue, Cityneon should at least add S$2.6m to the group’s profit (signi fies 4.7% of Star’s FY14 core earnings).

• In addition to the above, the acquisition valuation (7.5x P/E) implies a 19% discount to Cityneon’s current P/E of 9.3x. Thus, we deem the acquisition to be value accretive for Cityneon.

Comments

• Overall, we are positive on this new development as VHE’s businesses are synergistic with Cityneon’s existing operations.

• Hence, we reiterate that the event segment should be able to replicate its success in FY14.

Risks

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

Forecasts

• Unchanged pending more detail information.

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 - 3 Apr 2015