Star announced that its wholly-owned subsidiary, I.Star Ideas Factory SB, has acquired CNM  Events  Marketing  SB,  a  company  that  deals  with  events  related  to  home  and lifestyle  exhibitions  and  owns  the  established  'Perfect Livin'  and 'Perfect Lifestyle' brands, for a sum of RM45m, to be satisfied in cash via two tranches.

RM30m  profit  guaranteed  over 3  years.  The  acquisition was  a  positive  surprise  as  it comes with a profit guarantee of RM30m over a 36-month period - commencing from the conclusion of the exercise - from the previous shareholders Dato' Adrina Law Song Ting and Dato' Yam Fook Poh. This values the acquisition at a 4.5x forward PER, which we deem cheap.

CNM  in  a  snap.  CNM,  incorporated  on  19  July  2007,  is  involved  in  the  business  of managing, promoting and organising of all kinds of events, typically related to home and lifestyle  exhibitions.  The  company's  most  established  event  is  the  Perfect  Livin exhibition,  the  first  of  which  was  held  in  2008.  In  2011,  the  exhibition  successfully achieved  a  record  108,000  visitors  for  its  April  showcase  and  123,000  visitors  for  its August  showcase.  It  has  projected  a  combined  total  of  800k  visitors  for  its  various exhibitions this year, including Perfect Livin. With plans to organize more exhibitions, the company aims to boost the number visitors to its events to 1m next year.

A cash deal. The purchase consideration will be satisfied by cash, with the first payment of  RM28.8m  to  be  handed  over  on  the  completion  date.  The  balance  of  RM16.2m  is payable over three years, supported by the profit guarantee  from CNM and Dato' Law. As  at  31  Mar  2012,  Star  held  a  hefty  RM513.4m  in  net  cash.  After  deducting  this acquisition, Star's   net cash per  share  will  total  RM0.63. With  its strong  balance  sheet, we do not think that the cash acquisition will affect our dividend forecast of RM0.20 per share,  which  is  based  on  75%  payout  ratio.  This  will  translate  into  a  lucrative  dividend yield of 6.2%.

Maintain NEUTRAL. With this acquisition, we believe Star would be able to strengthen its position as a complete media group. The group's current portfolio of events includes the  notable  'CHEER'  cheerleading  competition,  The  Star  Education  Fair  and  The  Star Property  Fair.  We  believe  the  coming  on  board  of  Perfect  Livin  will  enable  the  media group  to  increase  its  visibility  to  the  masses.  Star's existing events  business  recorded revenue  of  RM183m  in  FY11,  representing  only  17%  of  group  revenue  and  making  a minimal impact on group earnings. With a profit guarantee of RM10m p.a,  we raise our earnings projection by 4% for FY12 and 3.8% for FY13. As such, our FV is bumped up to RM3.46, from RM3.33 previously, based on unchanged 13x FY12 PER. Even so, we are maintaining our NEUTRAL call for now due to the limited price upside.

Source: OSK