Highlights

• We attended Star?s 4Q16 analyst briefing and left feeling neutral on the group?s future prospects. Below are the salient points.
• Weak business condition (BCI) and consumer sentiment (CSI) persisted: 4Q16 continued to be affected by poor BCI and CSI as print adex shrinks further. Star Media maintains it high share of English paper adex at 65% with The Star, the group?s English newspaper. However, the group?s reliance on the print segment as its dominant contributor has proven to be a bane as Malaysian overall adex continued to shrink.
• Intellectual Property Rights unit holding down the fort: As expected, Cityneon?s contribution through Victory Hills Exhibition (VHE) helped alleviate the pressure of shrinking print contributions. As its travelling set in Singapore closes shop on 5 March 2017, we look forward to its next destinations, Taipei followed by Australia within the year. To combat the poor economic conditions, we believe for the event segment, management needs to accurately pinpoint a suitable IP Right to acquire as an expansion of its collection to stay current and maintain its lucrative earnings growth.
• Dimsum in the works: At RM15, the group?s latest digital offering, Dimsum, has gained 100k app downloads since its launch in November and management confirmed that it is on track with their plans although they remained tight-lipped about its specifics.
• Possible catalysts for improvement in the media industry are ASEAN@50, SEA Games, 60th National Day, 9th Asean Para Games and possible GE14. However, due to continued shift of adex from traditional to non-traditional platform, we remain wary on the growth of traditional adex, as we expect it to contract in 2017. In the immediate term, we expect a weaker 1Q due to seasonality however it may be slightly mitigated by contribution from Cityneon.

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

• Unchanged.

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 are positive on the contribution from Cityneon, reinforced by its healthy balance sheet and net cash position.

Valuation

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

Source: Hong Leong Investment Bank Research - 03 Mar 2017