Off the mark. Star's 1HFY12 revenue and core earnings of RM530m and RM77m fell short of both our and consensus estimates. Y-o-y, earnings fell 20% as its core printing segment as well as radio segment did worse than in 1HFY11. Its printing segment posted revenue and PBT of RM201m and RM54m respectively, down 1% and 20% respectively y-o-y due to weaker advertising income. Its radio business also recorded a lower revenue and PBT of RM14m and RM0.3m, sliding by 43% and 89% respectively owing to losses at its newly acquired station, Capital FM, and the amortization charges relating to its radio licence. The group's event and exhibition business was the only segment that chalked up y-o-y improvement, with revenue and PBT rising 25% and 27% respectively to RM82m and RM8m. Q-o-q, Star's revenue, PBT and core net profit surged 30%, 31% and 36% to RM299m, RM59m and RM44m respectively due to the low base in 1Q, which is typically the slowest quarter owing to seasonal factors, as well as advertisers' tendency to wait and see before finalizing their advertising budgets.

Margins shrink. Star's PBT and net profit margin shrank by 550bps and 380bps y-o-y respectively. We attribute this to the higher operating expenses, higher finance cost and losses at its newly acquired subsidiaries. The group's newly acquired Li TV recorded revenue of RM1.2m but the high operating cost of TV programmes as well as transmission and marketing expenses dragged this segment into a loss of RM2.3m.

NEUTRAL call. As the recently purchased events company CNM Marketing comes with a profit guarantee of RM10m p.a. over the next three years, we are upgrading our earnings projection by a slight 4% and 3% for FY12 and FY13 respectively. Our FV is now at RM3.46, based on an unchanged 13x FY12 PER, while our NEUTRAL call stays owing to the limited upside in the share price. Although Star's 1HFY12 earnings dropped 20% y-o-y, the group is carrying on its tradition of generosity by declaring a 6 sen single tier interim dividend and a special tax exempt dividend of 3 sen. We are positive that the group will continue to be generous with its dividends. Maintain NEUTRAL. 

Source: OSK