Highlights

• We opine that the special dividend of 30 sen per share that went ex today had acted as a short-term support to Star?s share price despite the poor showing in its 1H17 results.
• Moving forward, Star?s potential acquisition to fill the void left by Cityneon will be very crucial to return to the previous level of profitability. To recap, Star is currently sitting on a balance proceeds from the disposal of Cityneon of RM138.6m (after paying out RM221.6m as special dividend).
• Management expressed intention to t rim down operating expenditure to preserve its profitability of the print media business. We regard this to be challenging in the absence of a concrete target for the trimming amid unfavourable sector outlook.
• The group has now shifted its focus back to the OTT venture, dimsum. Dimsum is broadening the strength of its Asian content particularly on Thai contents. Besides, for exclusivity, dimsum is partnering with regional media players to create in-house contents. We opine that the OTT platform is overcrowded with too many players while piracy remains a major unsolved issue. Hence, it will be challenging for Star to outperform the market in this segment.
• Print revenue which accounts for about 60% of total group revenue is not expected to recover in the near term. In an effort to stimulate the sunset business, Star will be entering into a partnership with Singapore Business Times and The Wall Street Journal where subscribers of either plat form will be able to enjoy a discounted subscription rate of the other. Furthermore, Star will be taking their Power Talks to another level with more line ups of business events and speakers exclusively for their business content subscribers.
• Outlook: Moving forward, outlook of the company remains subdued with challenges coming mainly from the digital disruption amid cautious adex outlook. With the void left by Cityneon, we do not expect a swift recovery to its past profitability despite ongoing trimming of expenditure.

Risks

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

Forecasts

• Post disposal of Cityneon, we cut our FY17-19 earnings forecast by 60.5%, 57.2% and 52.7% to RM39.1m, RM43.2m and RM48.4m respectively.

Rating

SELL(↓ )

• We see Star?s earnings being affected by cautious Adex growth outlook caused by subdued business environment. Furthermore, its OTT venture would take a long time to breakeven given higher content cost.

Valuation

• Due to earnings uncertainties, we change our valuation methodology to P/BV from P/E valuation. We downgrade to SELL with a lower TP of RM1.47 (previously RM1.98) based on targeted PBR of 1.1x FY18 BVPS, an average PBR of regional peers .

Source: Hong Leong Investment Bank Research - 27 Sep 2017