Star’s 9M17 core net profit of RM30m (-40% yoy) came in below our expectations but above the consensus. The variance was mainly due to a lower contribution from the print division, as advertisers remained cautious on their ad spending given poor consumer and business sentiment. As such, we have cut our 2017-19 EPS forecasts by 8-10% to account for the weak 9M17 results. Maintain SELL on Star with a lower 12-month TP of RM1.30.

Core Net Profit Down 39.6% Yoy to RM30.3m for 9M17

Star reported an 18% yoy decline in 9M17 revenue to RM391.4m, mainly attributable to lower advertising revenue caused by ongoing challenges in the media industry with the shift to digital media as well as advertisers remaining cautious on their ad spending due to the poor market sentiment. Star’s revenue contribution from its print & digital, radio broadcasting and event & exhibition divisions declined by 19.3%, 1.8% and 23.8% yoy, respectively, to RM339.8m, RM30.2m and RM6.9m, but this was partially mitigated by higher contribution from the TV division, which saw its revenue increasing by 3.3% yoy to RM7.8m. The 9M17 PBT more than doubled yoy to RM227.5m due only to the gain on disposal from Cityneon. After excluding one-off items, 9M17 core net profit declined 39.6% yoy to RM30.3m, accounting for 60.4% of our previous 2017 forecast and 85.8% of the consensus. The variance with our forecast was mainly due to a lower-than-expected contribution from the print division.

Cutting 2017-19E Earnings, Maintain SELL With Lower TP of RM1.30

We cut our 2017-19E EPS by 8-10%, mainly to account for the weak 9M17 results. Our target price on Star has been lowered to RM1.30 (from RM1.41), based on an unchanged 19x PER (1SD below its 3-year average mean PER) on our 2018E EPS. 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 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. We maintain our SELL call on the stock.

Source: Affin Hwang Research - 21 Nov 2017