Results

• In Line – 9M17 revenue of RM391.4m was translated into core earnings of RM30.5m, which accounts for 78% and 86.4% of HLIB and consensus full year estimates, respectively.

Deviations

• None.

Dividends

• None.

Highlights

• QoQ: 3Q17 revenue increased by 1.2% to RM130.9m from RM129.4m, which translated into core earnings of RM15.4m from RM9.1m in 2Q17 (+69.4%) mainly due to higher contribution from Print and Broadcasting segment as there were more events in 3Q.
• YoY: 3Q17 recorded 36.6% drop in revenue, however on a comparable basis without City neon’s 3Q16 contribution, revenue would have only declined by 14.8%. The drop in earnings was dragged by lower contributions from Print, TV and Event segments. Conversely, core earnings recorded a 13.8% increase attributable to lower expenses post disposal and higher adex, as there were more events in the current quarter (i.e Anak-Anak Malaysia, Ride with Malaysia and etc.).
• YTD: Star’s 9M17 core earnings fell by 17.5% to RM30.5m from RM37m in (9M16 core earnings Ex- Cityneon), mainly attributed to subdued consumer and business sentiments that have affected overall Newspaper adex which declined by 21.7% YoY.
• Outlook: Traditional media continues to face 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.

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

• As the share price has corrected 29.4% since our last SELL call. We now upgrade to HOLD despite the expected return of 20.4% as we reckon that dividend payout is the only saving grace, which is unsustainable in the long run. We maintain our TP of RM1.47 based targeted PBR of 1.1x FY18 BVPS.

Source: Hong Leong Investment Bank Research - 21 Nov 2017