Highlights

• We attended Star’s 1Q15 analyst briefing, chaired by its Managing Di rector/ CEO, Datuk Seri Wong Chun Wai and the management team. Below are the salient points:

• Yoy earni ngs growth came from the group’s efficient cost savings efforts evidently shown from the 65% yoy increase to its operating profit. Quarterly expenses are expected to hover around the current level or may be slightly higher.

• In order to attract new advertisers and inevitably drive sales higher, Star will be launching the first of its kind; the Audience Interest Marketing (AIM) in June designed specifically to link advertisers di rectly with its targeted audience. With AIM, more ads would be viewable to consumers. If successful, we believe it will be the next driver to push earnings ahead.

• Other strategies to increase and diversi fy earnings include: (1) Rebuilding its core assets – for example the expansion & revitalisation of its event business; (2) Digital Transformation, which consists of 3 phases; and (3) Strategic and synergistic acquisitions – for instance Cityneon’s acquisition of Victory Hill Exhibitions (V HE) which will be completed by July 2015. Management expects the Marvel exhibition to contribute circa S$2.8m PAT this year.

• Also, to combat the drop in circulation revenue, on 23rd March, Star has collaborated with Sin Chew Daily for its joint e-bundling service. With Sin Chew on its boat, Star currently has 3 other newsprints - Philippines Inquirer, Jakarta Post and The Nation, Bangkok. Management also highlighted that it plans to retain the dividend payment of 18 sen per share (dividend yield of 7%), provided no unexpected negative impact on its bottom-line.

• However, Star could be potentially excluded in the Shariah May 2015 review as the conventional cash to assets ratio exceeded the 33% benchmark, coming in at 37.2%. We understand that it plans to convert some of the existing cash to Islamic cash.

• The sentiment will remain subdued as GST affects both consumers as well as advertisers (unlike in 2014 where the twin aviation disasters mostly affected advertisers). The group retains their cautious outlook on Adex growth for 2015 and expects adex to normalise in 2H15 as consumers 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 BUY and TP of RM2.73 based on unchanged targeted dividend yield of 5.5% with implied P/E multiple of 11x.

Source: Hong Leong Investment Bank Research - 26 May 2015