Results

• Above expectations – FY17 revenue of RM517.7m was translated into core earnings of RM41.9m came in above HLIB’s and consensus full year estimates.

Deviations

• Lower-than-expected operating expenses.

Dividends

• Declared 2nd interim DPS of 6 sen (ex-date: 28 Mar 2018) bringing YTD DPS to 42 sen, translating to a dividend yield of 31.8%.

Highlights

• QoQ: 4Q17 core earnings fell by 30.0% to RM11.4m mainly due to lower contribution from Print segment and TV segment (ceased in Oct 2017).
• YoY: 4Q17 recorded 51.5% drop in revenue, however on a comparable basis without City neon’s 4Q16 contribution, revenue would have only declined by 17.6% and core earnings recorded a 45.0% decrease to RM11.4m. The drop in earnings was dragged by lower contributions from Print and TV segments.
• YTD: Star’s FY17 core earnings fell by 10.7% to RM41.9m from RM46.9m in (FY16 core earnings Ex- Cityneon), was mainly attributed to subdued consumer and business sentiments that have affected overall Newspaper adex which declined by 21.9% 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. We do not foresee any near term catalyst, unless the group takes on an ideal merger or acquisition.

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

• We raise our FY18-19 earnings forecast by 2.4% and 2.1% to RM44.2m and RM49.4m, mainly to adjust for lower operating cost.

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

• Maintain HOLD recommendation, with a higher TP of RM1.50 (previously RM1.47) based targeted PBR of 1.1x FY18 BVPS.

Source: Hong Leong Investment Bank Research - 28 Feb 2018