Highlights

• Star Media Group proposed a disposal by a wholly-owned subsidiary company namely Laviani PTE. LTD. of 128k ordinary shares in Cityneon Holdings Limited, representing approximately 52.5% equity interest in Cityneon to Lucrum 1 Investment Limited for a disposal consideration of SGD115.6m (RM360.2m).
• The disposal is to be satisfied entirely via cash and is expected to be completed on the date falling three business days after the Condition is satisfied.

Comments

• Star Media Group purchased 128.5k of Cityneon?s shares from 2008 to 2016 at a cost of RM120.3m, gaining RM239.9m with the selling price at RM360.2m.
• Post-disposal, we cut our FY17 revenue forecast by 27.3% from RM981.9m to RM771.3m, which eventually flows down to a lower PATAMI of RM86.2m (28.7% lower than our previous forecast of RM110.9m).
• Despite lower PATAMI, the group will see its coffer rise by RM360.2m to RM859.8m and boosting its net cash position to RM658.1m or RM0.89 per share.
• 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 48.8 sen per share or 19.5% yield.
• We deem the selling price to be undervalued, as the offer price of SGD115.6m translates to SGD0.90 per Cityneon share, which is a steep discount of 38.8% to Bloomberg consensus TP of SGD1.25.
• Moving forward, we believe that Star will shift their focus back to their original core businesses and OTT venture, DIMSUM.

Risks

• (1) Weak Adex growth; (2) High newsprint cost; (3) Threat of new players; (4) Depreciation of RM vs. US$ and (5) Regulatory risk.

Forecasts

• Excluding Cityneon contribution, we reduce our FY17 and FY18 earnings forecast by 28.7% and 34.7% to RM88.2m and RM88.5m, respectively.

Rating

HOLD (↔)

• While we are neutral on this development, we see Star?s earnings being affected by cautious Adex growth outlook caused by weak consumer sentiment and sluggish economy. Nevertheless, with its healthy balance sheet and net cash position, the company can easily venture into new business segments.

Valuation

• We retain our HOLD call with a lower TP of RM2.44 (from RM2.50) based on unchanged targeted dividend yield of 6% and 100% payout of the sale proceed.

Source: Hong Leong Investment Bank Research - 15 May 2017