Highlights

• Star announced that its wholly owned subsidiary, Star RFM S/B has entered into a conditional sale and purchase agreement with Measat Broadcast Network Systems S/B for the disposal of 5m (100%) shares in Capital FM S/B (CFSB), for a total cash consideration of RM42.0m.

Comments

• CFSB holds a Content Applications Service Provider Individual (CASP) licence that enables it to broadcast both Capital FM and Red FM radio stations.

• Star currently has 4 radio stations under its belt, 988 FM, Suria FM, Red FM and Capital FM. In FY2015, 988 FM is the biggest contributor to its radio segment, followed by Suria FM, Red FM and Capital FM. Star’s Radio Segment contribut ed to 4.8% and 0.4% to the group’s revenue and EBITDA, respectively. Capital FM and Red FM contributed circa 11% to the radio segment while recording a loss of RM4.1m. Aside from being the smallest contributor, Capital FM and Red FM has been on auto-play since the start of the year therefore we believe the disposal will not materially impact Star’s future earnings.

• The group’s radio segment’s growth has been contracting due to tougher economic envi ronment, softer Adex growth and weak consumer and business sentiment. Therefore, we view this as positive as the disposal allows the group to streamline its businesses and concentrate on its more profitable operations.

• Star plans to fully utilise the proceeds for general working capital. We believe Star will be able to focus on growing its digital media segment namely the Victory Hill Exhibition which is not reliant on adex movement ultimately diversi fying and expanding its bottomline.

Risks

• Not getting new IP Rights;

• Weak Adex growth;

• High newsprint cost;

• Threat of new players;

• Depreciation of RM vs. US$; and (5)Regulatory risk;

Forecasts

• Unchanged.

Rating

HOLD

• For the immediate term, we s ee Star’s earnings being affected by cautious Adex growth outlook caused by weak consumer sentiment and sluggish economy. Nevertheless, we begin to turn more positive on the contribution from Cityneon, reinforced by its healthy balance sheet and net cash position.

Valuation

We retain our HOLD call with TP of RM2.50 based on a targeted dividend yield of 6%.

Source: Hong Leong Investment Bank Research - 13 Sep 2016