Results

• 1Q15 turnover of RM217.4m was translated into core earnings of RM26.5m, accounting for 18% of both ours and streets’ full year estimates.

• We deem the results to be within our expectations considering 1Q tends to be the weakest quarter as adex is usually spent towards the end of the year. Historically, 1Q earnings accounts for 17%-22% of full year earnings for the past 4 years.

Deviations

• In line.

Dividends

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

Highlights

• 1Q15 revenue, which was slightly below our expectations, increased slightly by 3% yoy but experienced a double digit decline of 23% qoq due to seasonal weakness. Yoy, event segment continues to be the main revenue driver for the group.

• Due to the continuous weak consumer sentiment and market uncertainties, revenue for print and radio segment fell short. However, PBT for print segment improved 78% yoy mainly on the back of reductions in direct costs coupled with impact of VSS expense of RM9.6m incurred in 1st quarter of FY14.

• Although event, exhibition and thematic segment was the main yoy revenue growth contributor for the group, it suffered a loss of RM5.3m caused by higher direct cost and lower profit margin from Cityneon. Its TV segment charted a loss of RM1.6m vs. RM1.3m in 1Q14 also due to higher direct costs.

• We expect 2015 would be another tough year due to adex being affected by poor consumer sentiment coming from higher cost of living and impact of GST. However, based on Star’s effective cost savings efforts as well as the lower newsprint costs (see Figure #4), we think 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 pending analyst briefing next week on 25th May 2015.

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 BUY and TP of RM2.73 based on unchanged targeted dividend yield of 5.5%.

Source: Hong Leong Investment Bank Research - 20 May 2015