Highlights

• Star announced that its wholly owned subsidiary, Laviani has received a notification from Bird & Bird ATMD LLP, a legal firm in Singapore expressing their clients? interest to purchase Laviani?s entire equity interest in Cityneon comprising 128.5m ordinary shares, representing approximately 52.5% of the issued share capital of Cityneon.

Comments

• Recall that, Cityneon owns the exclusive global intellectual properties (IP) right to Avengers S.T.A.T.I.O.N and Transformers Experience, which has been a major driver to to Star?s bottom line growth since FY15.
• Cityneon contributed 32.2% and 25.2% to the group?s revenue and EBIT, respectively in FY16. As the second largest revenue contributor, Cityneon?s EBIT grew by 340% (from RM8.6m in FY15 to RM37.9m in FY16).
• Star?s event segment has been gaining earnings momentum thanks to their unique IP rights. The line-up of more than 10 Marvels movies that will be coming on screen from now up till 2020 acts as an important catalyst for further robust growth.
• Despite our clarification with Star, disclosure of this deal remains very limited.
• Based on Bloomberg consensus TP of SGD1.26 (32% upside from last traded price of SGD0.995) Cityneon is valued at SGD308.3m. Hence, Star?s 52.5% stake is valued at SGD161.9m or RM499.9m.
• If this deal materialises, we do not discount that the sale proceeds may eventually be a windfall to shareholders in the form of special dividend. Assuming 100% payout, this translates into 67.7sen per share or 28.8% yield.
• Having said that, we expect Star to negotiate for higher pricing for this asset.

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 (↔)

• While we are positive on this development, 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 our HOLD call with TP of RM2.50 based on unchanged targeted dividend yield of 6%.

Source: Hong Leong Investment Bank Research - 08 May 2017