Results

• Below expectations – Star Media’s 9M16 revenue of RM671.8m (-9.0% yoy) translated into core PATAMI of RM49.4m after excluding one-off gain from deregistration of its subsidiary recognised in 2Q16. This is below expectations, accounting for 40.5% and 47.5% of ours and street’s full year estimates, respectively.

Deviations

• Lower than expected contribution across all key segments due to poor consumer and business sentiment.

Dividends

• None.

Highlights

• YoY: 9M16 revenue declined as print, radio and TV segments declined. Print revenue fell due to an 11.2% decline in newspaper adex while radio and TV fell as a result of soft consumer and business sentiments. However, Star’s event segment’s revenue grew by 1.5%.

• 9M16 PBT decreased by 9.78% yoy. Its radio and TV segments recorded losses while print recorded a decline in PBT by 38.1%. Event segment recorded PBT of RM16.3m (loss of RM3.6m in 9M15).

• QoQ: 3Q16 revenue experienced a double digit declined of -22.5% amounting to RM206.5m, mainly dragged down by its print and event segment by -5.0% and -49.7%, respectively.

• Star’s 3Q16 core earnings fell 50.0% qoq as all its segments aside from print recorded a qoq decline in PBT. (Print: 5.2%; Radio:-33.0%; Event:-109.9% and TV:-27.5%). The decline in its event segment was attributed to a drop in Cityneon’s PBT contribution by 10.9% qoq while I.Star Ideas Factory held only 2 shows in 3Q16 (4 shows in 2Q16).

• Moving forward, we expect a stronger 4Q as it is a seasonally stronger quarter coupled by expected higher contribution from Cityneon. Star is also diversifying its revenue base through its latest digital offering, a new video on demand service, Dimsum.

Risks

• (1) Not getting new IP Rights; (2) Weak Adex growth; (3) High newsprint cost; (4) Threat of new players; (5) Depreciation of RM vs. US$; and (6) Regulatory risk;

Forecasts

• We cut our earnings forecast for FY16-17-18 by 31.8%, 7.22% and 6.3%, respectively as we factor in weaker adex growth outlook.

Rating

HOLD ( ↔ )

• For the immediate term, we see 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 unchanged targeted dividend yield of 6%

Source: Hong Leong Investment Bank Research - 22 Nov 2016