Results

• Below expectations – Star’s 9MFY15 core earnings declined by 18% to RM83.5m (11.31 sen/share), falling behind ours and consensus’ estimates by making up 64% and 62% of full year forecasts, respectively.

• In the past 4 years, 9M usually represents 68%-76% of full year earnings.

Deviations

• Resulting from poor Adex spending which lead to revenue shortfall, while higher expenses pulled down overall earnings.

Dividends

• None. Dividends usually declared in 2nd and 4th quarter.

Highlights

• 3QFY15 review. Sales increased 3% yoy, but declined 4% qoq. The group experienced a decline in PATAMI for both yoy and qoq, charting 31% and 29% lower respectively. The lukewarm results were due to weak consumer sentiment and sluggish economy, which affected overall Adex spending.

• 9MFY15 review. 9MFY15 revenue increased marginally by 0.7% to RM738.3m where event and TV segment contributed most of the revenue growth, increasing 31% and 15% yoy, respectively. Both print and radio segment on the other hand, charted a single digit decline of 8% and 4% yoy, respectively. Operating expenses was 3% higher yoy.

• Overall PBT was 9% lower yoy due to higher direct costs from Cityneon (coming from acquisition related cost of Victory Hill Exhibitions) as well as lower revenue from Print (lower Adex spending) and I.Star Ideas Factory (due to lesser events).

• PBT wise, all segments save Print registered negative growth. Print recorded higher PBT by 2% due to the impact of VSS expense in 1HFY14. Radio, Event and TV segment recorded LBT of RM0.2m, RM3.6m and RM5.9m, respectively.

• Management expects Adex 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. The group also mentioned it will be expanding into digital business in video content via TheStarTV and newly launched Audience Interest Marketing (AIM).

Risks

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

Forecasts

• We are keeping our forecasts unchanged pending analyst briefing next week on 24th November 2015.

Rating

BUY

• We continue to favour Star for its efficient cost management, lower newsprint prices, 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 RM2.50 based on unchanged targeted dividend yield of 6.0%. We believe the group has sufficient cash to uphold its dividend payment despite slower earnings.

Source: Hong Leong Investment Bank Research - 17 Nov 2015