Period     2Q13/1H13

Actual vs.  Expectations   Star’s 2Q13 revenue of RM251m came in within our expectation but its net profit of RM28.5m was 23% below our forecast due mainly to higher than expected operating expenses. Its 1H13 net profit of RM54.6m only accounted for 33.7% of consensus full-year estimate and 37.0% of ours. Note that, Star’s 1H net profit generally accounted for about 46%-51% of full-year earnings in the past two financial years.

Dividends    A single-tier interim dividend of 6.0 sen was declared (exdate: 25^th Sept.) but no special dividend was announced. As such, the interim dividend is 33% lower than 1H12 when it rewarded a total dividend of 9.0 sen (including 3.0 sen special dividend) to its shareholders.  We  have cut our Star’s full-year DPS to 15.0 sen (from 18.0 sen previously), translating into a 5.4% dividend yield. 

Key Result Highlights  YoY, the 1H13 revenue declined 11% to RM471m due to the cautious stance of advertisers in the English print segment pre-and-post the general election. The group recorded lower contributions from all the key segments namely Print and New Media (-7.2% to RM368m), Radio (-5.4% to RM25m); Event (-29.2% to RM72m) as well as the TV segment (-0.1% to RM3.1m). In tandem with the lower turnover coupled with higher operating costs, EBIT dropped 26.5% to RM81.4m while its margin fell to 17.3% from 20.9% a year ago.  

QoQ, Star’s 2Q13 revenue improved by 14% to RM251m, mainly driven by higher contribution from the print (+1.4%) and the radio (+8.6%) as a result of the election campaign boom. Meanwhile, the event division also recorded higher revenue during the quarter to RM48.7m (+107%). Its PBT also improved in tandem to RM41m (+17%) on slightly higher margin of 16.4% (vs 15.9% in 1QFY13).  

Outlook    STAR’s adex outlook remains challenging for the rest of FY13 due to the lacklustre circulation growth in the English segment and ongoing print-to-online migration. On top of that, the group may continue to face margins compression as a result of higher operating costs.

Change to Forecasts     Post-results, we are revising lower our Star’s FY13-FY14 net profit to RM126.3m (-14.4%) and RM137.8m (-13.0%), respectively after factoring in (i) higher operating cost assumptions; and (ii) higher effective tax rate (from 25% to 29.1%). 

Rating   Downgrade to UNDERPERFORM

Valuation     We have lowered our TP to RM2.46 (from RM2.73 previously) based on an unchanged targeted -1.5x SD with an implied FY14 PER of 13.2x

Risks    The CY13 gross adex growth coming in below our expectation of RM13.4b (+17.5% YoY) or RM8.6b (+2.1%) after stripping-off the Pay-TV segment contribution.

Source: Kenanga