Period  1Q14

Actual vs. Expectations STAR’s 1Q14 NP of RM16.3m came in below expectations and accounted for only 13.9% of our FY14 forecast and 11.2% of the street’s full-year estimate. On our side, the variance was mainly due to the lower-thanexpected advertising revenue and weaker margin recorded in the print and digital division. Note that STAR’s 1Q NP generally accounted for 18%-22% of the full-year earnings, based on the past three years financial performance.

Dividends  No dividend was declared during the quarter.

Key Results Highlights YoY, 1Q14 revenue slipped 4% to RM221m as a result of lower advertising revenue. The group’ PBT declined by 38% due to lower revenue and higher operating expenses mainly related to a Voluntary Separation Scheme (VSS) amounting to RM9.6m. Stripping-off the VSS cost, STAR’s 1Q14 PBT contracted by only 10.7% with a margin of 14.8% vs. 15.9% a year ago.

 Print and New Media segmental 1Q14 revenue was lower by 10.7% YoY to RM163m due to lower advertising revenue caused by economic uncertainties as well as the MH370 incident. The division’s PBT plunged 43% YoY to RM25m while its margin contracted to 15.3% (vs. 23.9% a year ago) due mainly to the VSS expenses in 1Q14. Radio broadcasting segment, meanwhile, saw its revenue improved marginally by 2% YoY to RM13m but continued to suffer LBT, although it narrowed by 6.4% YoY to RM1.2m as a result of better cost management. Event division’s revenue was higher by 31% YoY to RM31m on additional projects with negligible LBT (vs. RM5m LBT in 1Q13) as a result of better gross margins and lower operating costs. Television division’s revenue stood at RM2.7m (+103% YoY), thanks to higher distribution and regional revenue. The segment’s LBT, meanwhile, narrowed to RM1.3m in contrast to RM2.1m LBT a year ago.

 QoQ, Star’s 4Q13 turnover fell 27% due to lower revenue from the Print division as a result of seasonal factors. Its PBT was plunged by 64% due to lower revenue and VSS expenses.

Outlook  We remain cautious on STAR’s advertising revenue outlook in view of on-going print-to-online migration. Its event division contribution, however, remains a wildcard to the group’s earnings

Change to Forecasts We have lowered our FY14 and FY15 NP forecasts to RM113m (-3.1%) and RM145m (-4.5%) after imputing: (i) a higher operating cost assumption and (ii) some finetuning.

Rating Maintain UNDERPERFORM

Valuation  We have rolled over our valuation base year to FY15E, and thus, lifting our TP to RM2.37 (from RM2.05 previously) based on a targeted PER of 12.1x (-2.0x SD).

Risks to Our Call  Improvement in adex sentiment.

Source: Kenanga