Results

• Below expectations – 1H17 revenue of RM260.5m was translated into core earnings of RM15.2m, which accounts for only 15.3% and 22.0% of HLIB and consensus full year estimates, respectively.

Deviations

• Lower than expected contribution from the print and digital segment as well as event and exhibition segment.

Dividends

• Declared interim DPS of 6 sen together with a special dividend of 30 sen per share, bringing total YTD DPS to 36 sen (dividend yield of 15%).

Highlights

• QoQ: 2Q17 revenue dropped 29% to RM129.4m from RM183.1m, which translated into lower core earnings of RM8.5m from RM10.5m in 1Q17 (-19%). The huge decline in revenue was partly due to the exclusion of Cityneon’s contribution in the current quarter (revenue would have soared by 28% if included). The decline in core earnings was mainly due to lower revenue contributions from print and digital as well as the event and exhibition segment.

• YoY: The 51% drop in 2Q17 revenue translated into a significant decline in core earnings of 62%. However, on a comparable basis with City neon’s contribution, revenue would have only declined by 14%. The sharp contraction in earnings was dragged by lower contributions from print, TV and event segments.

• YTD: Star’s 1H17 core earnings fell by 60% to RM15.2m, mainly attributed to subdued consumer and business sentiments that have affected print adex to decline by 23.4% YoY.

• 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 modern channels in line with its effort to reduce its dependence on traditional media.

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

• Unchanged with a negative bias pending analyst briefing slated on 29 th August 2017.

Rating

HOLD ( ↔ )

• We see Star’s earnings being affected by cautious Adex growth outlook caused by weak consumer sentiment and sluggish economy. Together with the loss of Cityneon’s contribution to the event segment, we don’t see a potential growth catalyst moving forward.

Valuation

• We reiterate HOLD with an unchanged TP of RM1.98 based on 14.5x FY18 core EPS of 13.7 sen.

Source: Hong Leong Investment Bank Research - 22 Aug 2017