Highlights

• We attended Star’s 1QFY16 analyst briefing, chaired by its Managing Di rector/CEO, Datuk Seri Wong Chun Wai and the management team. We left feeling neutral on the group’s future prospect. Below are the key takeaways -

• With the higher cost of living and weak consumer and business sentiment (due to slow adaption to GST), revenue outlook is still challenging. Advertisers can be seen trimming their adex spending (for example from advertising with colour to black & white). Nevertheless, management is expecting a better 2Q resulting from the possible spending due to Raya Festivities and UEFA Euro 2016.

• Expect lower contribution from radio segment. The restructuri ng of the group’s radio stations is underway– namely Red FM and Capital FM and should be completed by fourth quarter of FY16. Currently, both stations have been on an auto-play mode since end of year 2015. By doing so, the group would be able to decrease its operational costs (by circa RM5m – RM7m per annum), providing some relief to its lacklustre bottomline.

• Management also shared that it believes Cityneon would contribut e signific antly to the group’s bottomli ne in the future. Cityneon’s Marvel and Transformer exhibitions are expected to open on 22nd of June 2016 in Las Vegas with tickets pricing approximately US$20/ticket.

• With the weak sentiment in Malaysia, the group is focusing on expanding and capturing audience internationally. Cityneon would be focusing on Europe, Middle East and China. Whereas its TV segment, (Li TV) will look for opportunities in East Asia such as Hong Kong, Taiwan and South Korea.

Dividend

• of 18 sen/share should be maintained should the company be able to sustain its earnings. To date, the group has a net cash position of RM332.8m equivalent to 45.1 sen/share.

Risks

• Weak Adex growth;

• High newsprint cost;

• Threat of new players;

• Depreciation of RM vs. US$; and

• Regulatory risk.

Forecasts

• Unchanged.

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 - 31 May 2016