Results

• Below expectations – Star’s 1H16 revenue of RM465.3m (-3.8% yoy) translated into core PATAMI of RM38.1m after excluding one off gain of RM21.1m from deregistration of its subsidiary. This is below expectations, accounting for 31% and 33% of ours and street’s full year estimates , respectively.

Deviations

• One-off gain from deregistration of Star’s wholly -owned subsidiary in Australia, Excel and its dormant subsidiary, AIUS.

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

Dividends

• Declared first interim dividend of 9 sen/share, equal to last year’s di vidend (2QFY15). Ex-date: 30-Sept-2016, and payment on 18-Oct-2016.

Highlights

• 2QFY16 review. Revenue increased marginally by 0.1% yoy (+34.1% qoq). Excluding contributions from Cityneon, sequential revenue growth was below our expectations due to lower than expected advertising revenue from its print segment (+1.0% qoq, -13.2% yoy) and airtime revenue from its radio segment (-9.2% qoq, -19.1% yoy) caused by weak consumer and business sentiment.

• 1HFY16 review. 1HFY16 revenue declined 3.8% to RM465.3m due to negative growth in all its segment except for the event segment which charted a double-digit growth of 22.1% (Print: -13.0% yoy; Radio: -13.3% yoy; TV: -9.1% yoy).

• PBT (after exclusion of one-off gain) declined by 25.5% yoy. Print segment declined 40.4% yoy albeit maintaining its position as the main contributor to PBT (RM50.2m) while its radio and TV segment recorded further loss. On a more positive note, the event segment turned profitable recording RM18.3m mai nly contribut ed by Cityneon’s exhi bitions and IP rights. However, it was slightly offset by lower contribution from I.Star Ideas Factory (held 6 shows in 1H16 compared to 8 shows in 1H15).

• Management guided for a soft adex in 2H16 due to economic uncertainties. However, we believe this would be cushioned by improved cont ribution from its subsidiary Cityneon.

Risks

• (1) Weak Adex growth; (2) High newsprint cost; (3) Threat of new players; (4) Depreciation of RM vs. US$; and (5)Regulatory risk.

Forecasts

• Maintained, pending analyst briefing on the 25th of August.

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 - 23 Aug 2016