Results

• Below expectations – 1QFY17 revenue of RM183.1m was translated into core earnings of RM7.2m, which accounts for 8.4% and 8.3% of HLIB as well as consensus full year expectations.

• Despite 1Q historically being the weakest quarter (circa 20% of full year earnings) as adex is usually spent towards year end, we still deem results to be below expectations.

Deviations

• Lower than expected contribution from the print and digital segment.

Dividends

• None.

Highlights

• YoY: The 8% drop in 1Q17 revenue translated into a significant decline in core earnings of -53%. The sharp contraction in earnings was dragged by lower contribution from all division, particularly the print and digital segment due to poor market sentiments and decline in newspaper’s adex. Yoy, the bread-and-butter print division charted double-digit decline in revenue of 20% while PBT contracted significantly by 70%.

• QoQ: 1Q17 revenue dropped 30% qoq, which translates into lower core earnings of RM7.2m from RM20.5m in 1Q16 (- 65% qoq). This is mainly due to lower revenue contribution from Print, Radio and Event segment.

• Outlook: Traditional media is currently facing the digital disruption. Moving forward, outlook of the company remains subdued with challenges from the continued weak consumer sentiment and economic uncertainties. However, we foresee Star to further diversify into different segments in line with its effort to diversify away from traditional media.

Risks

• (1) Weak Adex growth;

• (2) High newsprint cost;

• (3) Threat of new players;

• (4) Depreciation of RM vs. US$

• (5) Regulatory risk.

Forecasts

• We lower our FY17-18 core net profit forecast by 29.3% and 28.3% largely to reflect for lower newspaper adex (which has been affecting most traditional media i.e. newsprint).

Rating

• SELL

• We see Star’s earnings being affected by cautious Adex growth outlook caused by weak consumer sentiment and sluggish economy. With current market condition, we expect newsprint adex to continue weaken as advertisers are shifting to digital advertising. Together with losing Cityneon’s contribution to the event segment, we don’t see a potential growth catalyst moving forward.

Valuation

• We downgrade to SELL with a lower TP of RM2.00 (from RM2.44) based on unchanged targeted dividend yield of 6% and 100% payout of Cityneon’s sale proceed

Source: Hong Leong Investment Bank Research - 24 May 2017