Period  2Q14/1H14

Actual vs. Expectations STAR’s 1H14 NP of RM55.6m came in largely within expectations, accounting for 49.1% of our full-year forecast and 39.2% of the street consensus. Historically, 1H generally accounted for c.38.2%-51.2% of full-year earnings as was the case in the past three years. The wide earnings disparity was mainly caused by the lumpy contribution from its event division.

Dividends  Declared a total dividend of 9.0 sen (vs. our 6.0 sen estimate) which consists of 6.0 sen first interim dividend and 3.0 sen special tax exempt (ex-date : 24 Sept). For the full-financial year, we are keeping our 15.0 sen DPS forecast for now, pending further clarity from management.

Key Results Highlights YoY, 1H14 revenue improved 3% to RM486m as a result of higher revenue contribution from its event division (Cityneon). PBT, however, declined by 2% due to higher operating expenses mainly related to a Voluntary Separation Scheme (VSS) amounting to RM11.5m. Stripping-off the VSS cost, 1H14 PBT improved by 12.9% with a margin of 17.5% vs. 16.1% a year ago.

 Print and New Media segmental 2Q14 revenue improved by 4.4% YoY to RM193m due to higher advertising revenue (4.5% YoY to RM163m). The division’s PBT also improved by 15.3% to RM48m while its margin climbed to 24.8% (vs. 22.5% a year ago). Radio broadcasting segment, meanwhile, saw its revenue improved marginally by 1% YoY to RM13m but continued to suffer LBT, albeit narrower by 45% YoY to RM1.2m as a result of better cost management. Event division’s revenue was higher by 31% YoY to RM64m on additional projects completed by Cityneon and additional exhibition show held in Penang for Perfect Livin’. Television division’s revenue stood at RM2.4m (+26% YoY), thanks to higher distribution and regional revenue but suffered a LBT of RM1.7m due to higher programme and marketing expenses.

 QoQ, 2Q14 turnover advanced 30% due to higher revenue from its print and event segments. PBT soared 144% due to lower base effect in 1Q14 brought about by the MH370 tragedy and VSS expenses.

Outlook  We remain cautious on STAR as well as the industry advertising revenue outlook moving forward in view of the potential slow-down in ads spend as a result of interest rate hike and on-going subsidy rationalisation plans. Its event division contribution, however, remains a wildcard to the group’s earnings.

Change to Forecasts We have raised our FY14E-FY15E NP forecasts by 3.1%-3.4%, respectively, after imputing higher contribution from its event division and other operating income.

Rating Maintain UNDERPERFORM where we believe the company as well as the sector will negatively affect by the gloomy adex outlook moving forward.

Valuation  Raised TP to RM2.44 (from RM2.37 previously) based on a targeted FY15 PER of 12.1x (-2.0x SD).

Risk to Our Call Improvement in adex sentiment.

Source: Kenanga