Results

• Below expectations – 1QFY16 revenue of RM198.7m was translated into core earnings of RM14.9m, which accounts for 13% and 12% of HLIB as well as consensus full year expectations.

• Despite 1Q traditionally being the weakest quarter for most media companies (typically, adex is spent towards the end of the year), we deem results to be below expectations. Historically, 1Q earnings account for 17% - 22% of full year estimates for the past 5 years.

Deviations

• Lower than expected contribution from its Print and Digital segment.

Dividends

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

Highlights

• 1Q16 revenue dropped 9% yoy and 29% qoq resulting from lower contribution from all its division, particularly the print and digital segment. Yoy, print division charted double digit decline of 13% to RM141.9m.

• While the rest of Star’s di vision recorded negati ve growth, its event segment improved 10% yoy. The higher turnover was contributed by events done by Cityneon. However, revenue was slightly offset by the lower shows from I.Star Ideas Factory (held 2 shows so far in 2016 compared to 3 shows in 2015).

• PBT wise, with the exception of print and digital segment (PBT: RM27.2m), its radio, event and TV segments suffered losses of RM0.4m, RM1.8m and RM2.0m, respectively.

• Moving forward, we believe it would be a challenging year for the group seeing from the continued weak consumer sentiment and economic uncertainties.

Risks

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

Forecasts

• We maintain our forecasts for now, pending analyst briefing on the 30th of May.

Rating

HOLD

• For the immediate term, we see Star’s earni ngs being affected by cautious Adex growth outlook caused by weak consumer sentiment and sluggish economy. Nevertheless, with its healthy balance sheet and net cash position, we believe Star would be able to maintain its dividend payment to investors.

Valuation

• We retain our HOLD call and TP of RM2.31 based on unchanged targeted dividend yield of 6.5%.

Source: Hong Leong Investment Bank Research - 25 May 2016