Highlights

• We attended Star’s 2QFY 15 bri efi ng, chai red by its Managing Director/CEO, Datuk Seri Wong Chun Wai and the management team. We left the event feeling neutral on the sector and business outlook.

• As of June 2015, Star’s e -paper has breached the 100,000 subscriber count or 108,375 to be exact. As stated by the management, the group is expecting an increase in its epaper subscription by 20,000 by the end of the year. Despite a negligible contribution to its topline, we believe the growing number of subscribers would eventually translate to higher adex by advertisers.

• We also note that Star launched its Audience Interest Marketing (AIM) in 2QFY15 that is designed to link advertisers directly to its targeted audience.

• Its print segment still remained weak. Revenue declined 15% qoq and 8% yoy. We opine that the group’s effort to continue building its digital media presence is commendable and should bear fruit in the long term.

• Star’s Victory Hill Exhibition (VHE) acquisition is expected to complete by end of September 2015. It is estimated that Star will have to fork out approximately S$10.2m for its rights issue (which equates to RM30.6m based on exchange rate of SGD/MYR 3.0019 as of 24th August 2015.)

• With the current economic uncertainties, lingering effect of GST on consumers and advertisers which inevitably bruised consumer and business confidence, adex is expected to remain flat in 2HFY15. Management is cautiously optimistic that adex should normalise in 4QFY15 as Malaysians adapt to GST.

• Nevertheless, we believe Star has the ability to pay DPS of 18 sen per annum based on a DPS range of 15 sen – 18 sen per share which will translate to a decent dividend yield of 7.7% based on the current share price.

Risks

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

Forecasts

• Cut our forecasts for FY15, FY16 and FY17 by 10% - 14% to reflect the current economic environment and weak consumer and business sentiment.

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 with lower TP of RM2.50 based on higher targeted dividend yield of 6.0%. The company has sufficient cash to maintain its dividend payment even with slower earnings.

Source: Hong Leong Investment Bank Research - 25 Aug 2015