Star’s 2017 core net profit of RM53m (-22.5% yoy) came in above our and consensus expectations. Moving into 2018, we expect adex to pick up slightly on the back of major events such as general election and the World Cup. As such, we have raised our 2018-19E forecasts by 3-7% and introduce 2020E numbers. We upgrade Star to a HOLD with a higher TP of RM1.38.

2017 Earnings Above Expectations

Star’s 2017 revenue posted a decline of 17.9% yoy to RM517.7m, mainly attributable to lower advertising revenue given the continued weakness in the consumer and business sentiments. Star’s revenue contribution from its print & digital, radio broadcasting, event & exhibition as well as television channel recorded a decline by -18.3%, -3.6%, -30% and -41% yoy, respectively, to RM449m, RM40.7m, RM9.6m and RM7.9m. After excluding one off items, which includes gain on disposal of Cityneon, MSS and impairments, Star’s core earnings declined by 22.5% yoy to RM53m. This however came in above our and consensus expectations, accounting for 117% and 144% of forecasts respectively. The variance to our forecast was mainly due to lower-than-expected cost of sales and slightly betterthan-expected effective tax rate. Star declared a final DPS of 6 sen, bringing 2017 DPS to 42 sen (2016 DPS: 18 sen).

Upgrade to HOLD With TP at RM1.38

We increase our 2018-19 core EPS forecasts by 3-7% after the 2017 results as we expect some improvement in adex on the back of major events such as the general election and the 2018 FIFA World Cup. As such, our TP is raised to RM1.38, based on an unchanged 19x PER (current 1SD below 3-year average mean) to our 2018E core EPS. Given the limited upside to our new TP, we upgrade Star to a HOLD. Nevertheless, we remain cautious on Star because of: 1) the ongoing, challenging outlook for the media industry; 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.

Source: Affin Hwang Research - 28 Feb 2018