We attended STAR’s post-2Q13 results briefing yesterday. The key highlights of the briefing focused on: (i) the company’s dividend, (ii) adex outlook and; (iii) an update on its existing businesses. Although STAR is still expecting to maintain its annual DPS of 18.0 sen, management does not discount the possibility of reviewing the dividend payout should the group fails to achieve internal targets. Meanwhile, management has turned cautious  on the group’s 2H adex prospects as advertisers are still  adopting a cautious mode post the General Election. On top of that, STAR has started to streamline its work-force by aiming to achieve 10% lower staff count by end-FY13.  Our FY13-FY14 earnings estimates have been lowered by -1.7% to -2.1% after fine-tuning the currency exchange assumptions to align with our latest in-house economic team’s estimate.  Similarly, our target price for STAR is cut to RM2.41 (from RM2.46 previously) based on an unchanged targeted FY14 PER of 13.2x (-1.5x SD). We are keeping our UNDERPERFORM call on STAR.  

Full-year dividend per share (“DPS”) is under review. Although STAR is still aiming to maintain its full-year DPS of 18.0 sen (as in FY12), its ability to reward shareholder will rely on the capability of the group to achieve the internal targets: (i) PBT of RM180m in FY13 (1HFY13: RM76.1m); and (ii) to record lower losses of less than SGD5m (1HFY13: SGD1.9m) in its event management division. Should the group fail to achieve the above mentioned targets, there is a possibility for STAR to declare a lower annual DPS in FY13. To recap, the group has declared an interim DPS of 6.0 sen (1HFY12: 9.0 sen (including a 3.0 sen special dividend) in conjunction with its latest results release. At present, we believe the group’s internal targets remain challenging, thus there is no change in our full-year 15.0 sen DPS estimate, translating into a 5.7% dividend yield.  

Gloomy adex outlook. Management has turned cautious of the group’s 2HCY13 adex outlook, as advertisers are still adopting a cautious mode post the General Election. Meanwhile, the recent credit  tightening rules introduced by Bank Negara for both the credit card  and the property financing had also lower advertisers’ appetites for adex spending. STAR believes that the full-year annual adex growth rate (excluding the Pay-TV segment contribution) is likely to come in at a low single digit, despite historical tendencies where the 2H performs better than the 1H. Note that, Nielsen Media had lately reported that the YTD July’s gross adex has advanced by 18.2% YoY (or 1.2% YoY if we were to strip off the Pay-TV segment contribution). There is no change in our annual adex growth rate forecast of 17.5% YoY (or 2.1% YoY excluding the Pay-TV segment).  

Implementing cost-cutting measures.  Management indicated that the weaker-than-expected 2Q13 results were mainly due to the sluggish adex revenue and the persisting high administrative costs led by high wages. To improve its efficiency, STAR has started a series of cost-cutting measures, including to lower its current work force by 10% to c.1.45k by year-end.   

Fine-tuning our currency exchanges forecast. We have revised our FY13-FY14 average USD/RM currency forecasts to RM3.11 and RM3.09 (from RM3.05 and RM3.01 previously) to align with our latest in-house economic team’s estimates. Our economists are now expecting the Ringgit to record at RM3.17 by end-CY13 and RM3.09 by end-CY14 (from RM3.05 and RM3.01 previously).

Source: Kenanga