Results

• Within expectations – Star’s 1HFY15 revenue of RM483.7m (-0.4% yoy) translated into core PATAMI of RM59.8m (-11% yoy) came in within expectations, accounting for 40% and 42% of HLIB and streets’ full year estimates.

• We consider the results to be in line with our expectations as historically, 1H represents 38%-53% of full year earnings for the past 4 years.

Deviations

• In line.

Dividends

• Declared first interim dividend of 9 sen/share. Ex-date: 22- Sept-15, and payment on 16-Oct-15.

Highlights

• 2QFY15 review. Revenue dropped 3% yoy, but increased 22% qoq. This is as expected for qoq as 1Q is the weakest quarter. Yoy decline was mainly caused by GST implementation and economic uncertainties which affected consumer and business confidence altogether. PAT declined 15% yoy but increased 39% qoq.

• 1HFY15 review. 1HFY15 revenue declined marginally by 0.4% to RM483.7m. Event segment remains to be the sole contribut or to Star’s 1HFY15 t urnover growth, increasing 29% yoy, while the other segments charted negative growth (Print: -8% yoy; Radio: -4% yoy; TV: -1% yoy).

• However, despite being the revenue driver for the group, its event segment recorded a loss before tax of RM0.1m due to higher direct costs, lower profit margin, lesser events by I.Star Ideas Factory (that focuses on exhibitions) and the acquisition related cost of Victory Hill Exhibitions (Marvel acquisition).

• Positivesly, its operating expenses were 1% lower yoy. The group also managed to record a 5% growth yoy for its PAT mainly on the back of higher profit recorded for both print and radio segment.

• Management stated that they’re cauti ously optimistic on 2HFY15 performance. Adex is expected to be flat for FY15. For its event and exhibition segment, Cityneon will continue to explore opportunities locally as well as in other SEA countries such as Vietnam and Myanmar.

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 24th August 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

• We retain our BUY call and TP of RM2.73 based on unchanged targeted dividend yield of 5.5%.

Source: Hong Leong Investment Bank Research - 19 Aug 2015