Another weak quarter, below expectations

Star’s 9M16 core net profit of RM51.9m came in below expectations. The variance was mainly due to lower contribution from the print and radio divisions as advertisers remained cautious on their ad spending given the poor consumer and business sentiment. We have cut our 2016-18 EPS forecasts by 7-17% to account for the weak 9M16 results. Maintain SELL call on Star with a lower TP of RM2.00.

9M16 core earnings down 36% yoy – below expectations

Star’s 9M16 revenue declined by 9% yoy to RM671.77m. Revenue contribution from the print, radio broadcasting and TV divisions declined by 13.1%, 16.8% and 13.1% yoy, respectively to RM421.3m, RM30.7m and RM7.6m, but this was partially offset by higher contribution from the event management division, which saw its revenue rise by 1.5% to RM203.7m. Advertisers remained cautious on their ad spending given the poor consumer and business sentiment coupled with the challenging market environment. The 9M16 core net profit declined by 35.6% yoy to RM51.9m, after excluding the gain on deregistration of Star’s subsidiary company in Australia and other one-off items. This was below both our previous and consensus expectations, accounting for 51% and 50% of our respective 2016 forecasts. The variance was mainly due to lower-than-expected contribution from the print and radio divisions.

Cutting 2016-18 core EPS forecasts

Given the weaker-than-expected 9M16 performance, we are cutting our 2016-18 core EPS estimates by 7-17%, mainly adjusting for: 1) 1-6% lower newspaper adex assumptions for 2016-18E; and 2) 3-11% lower radio adex assumptions for 2016-18E.

Maintain SELL rating with a new target price at RM2.00

We remain cautious on Star because of: 1) the ongoing challenging outlook for the media industry with adex potentially affected in the quarters ahead from continued uncertainties in the market, coupled with the poor business and consumer sentiment; 2) it being adversely affected by the shift in adex revenue towards the broadcast segment from print; and 3) negative effects on hard-copy circulation due to the continual shift in reader preferences to reading on mobile devices or over the Internet. Maintain SELL call on Star with a new target price of RM2.00 (from RM2.13 previously) based on an unchanged 13.4x PER to our 2017E EPS.

Source: Affin Hwang Research - 22 Nov 2016