We attended Star’s analyst briefing yesterday and came away with a rather neutral view. The group has been continuously disposing loss making subsidiaries, and is now left with only two subsidiaries (Suria FM and Dimsum) that are in the red. We are expecting a stronger Q2, mainly due to one off events (GE14 and World Cup) which are not sustainable and we do not see any catalyst in the subsequent quarters. We turn conservative on Star’s payout, as the group may choose to preserve cash for potential M&A. We keep our forecast unchanged. We maintain HOLD rating with an unchanged TP of RM1.04 based on 1.0x FY19 P/NTA.

We attended Star’s analyst briefing yesterday and came away with a rather neutral view. Below are the key takeaways from the briefing.

Cleaning up loss making subsidiaries. To mitigate further losses the group has continuously disposes loss making businesses: (i) Penang printing plant, which was only running at a 20% utilisation rate, (ii) Leaderonomics and (iii) LiTV. With that, the group is now left with only two loss making subsidiaries (Suria FM and Dimsum). However, management mentioned that there are no plans of disposing both the broadcasting station and OTT platform.

Topline needs to be defended. Adex should improve in Q2 mainly due to (i) GE14 campaigning period in April, (ii) Hari Raya in June and (iii) World Cup in June. Coupled with last year’s cost cutting measures (MSS/ERO), we are expecting to see improved margins in Q2. However, we do not see any catalyst for the following quarters (Q3 and Q4) and opine that the cost saving measures may not be strong enough to cushion the falling revenue.

Lower DPS. As the group is seeking for potential M&A, we opine that it may choose to preserve cash. As we turn more conservative on their payout, we are expecting a DPS of 9 sen for FY18.

The group has to look for a new direction. Traditional media continues to face the digital disruption. Outlook of the company remains subdued with challenges from the declining newspaper circulation, weak consumer sentiment and economic uncertainties. We see Star’s earnings being affected by cautious adex coupled with the loss of Cityneon’s contribution to the event segment. As such, we do not see a potential growth catalyst moving forward.

Forecast. Unchanged.

Maintain HOLD with an unchanged TP of RM1.04, based on 1.0x FY19 P/NTA. Despite the gloomy sector outlook, Star’s saving grace comes from its attractive yield of 8.2% (FY18).

Source: Hong Leong Investment Bank Research - 24 May 2018