Period  4Q14/FY14

Actual vs. Expectations  Star Publication (Star)’s FY14 NP of RM111.4m (-22% YoY) came in below expectations at 94.4% of our and 80.5% of the street’s full-year estimate, respectively.

 The key deviation on our end was mainly due to its higherthan- expected OPEX led by RM26.0m impairment costs.

Dividends  Declared a total DPS of 9.0 sen (including of 3.0 sen special dividend) single-tier net dividend in 4Q, bringing its full-year DPS to 18.0 sen (FY13: 15.0 sen). The full-year DPS is higher than our earlier expectation of 15.0 sen.

Key Results Highlights  YoY, FY14 revenue declined marginally by 1.1% to RM1013.7m as the higher event division’s contribution (+18% to RM236m) was offset by the lion’s share revenue contributorthe print segment’s weaker sales (-5.9% to RM707m). PBT, however, decreased by a wider quantum of 20% due to higher operating expenses mainly related to a Voluntary Separation Scheme (VSS), impairment losses on its intangible assets and investment in associates totalling to RM38m YTD. Stripping-off all the non-core expenses, FY14 PBT would have remained relatively flat (-0.8%) at RM191m with an unchanged margin of 18.8%.

 Print and New Media segmental 4Q14 revenue declined by 6.6% YoY to RM180m due to the lower advertising revenue which was affected by poor consumer sentiment amidst the rising cost of living. The division’s PBT, meanwhile, declined by 15.3% to RM46m due to the similar impairment losses mentioned above. Looking at its core PBT basis, 4Q14 PBT would have only decreased by 4.0%. Radio broadcasting segment, meanwhile, registered a much weaker 4Q14 revenue of RM13m (-22%) with LBT of RM3.3m (-245%) amidst a much cautious stance adopted by advertisers. Similarly, Television division’s revenue declined to RM3.2m (-6.1%) due to fewer contracts completed. Notably, LBT suffered a wider loss of RM14.3m due to impairment loss on goodwill. With that being excluded, core LBT would have been RM1.9m (vis-à-vis 4Q14 LBT of RM1.4m). On the flip side, Event division was the only segment registered positive revenue growth of 13.2% YoY to RM82m due to exhibition and interior projects completed by Cityneon.

 QoQ, 4Q14 turnover improved by 14% which we believe was mainly helped by seasonal strength with aggressive adspends by advertisers to meet their annual adex budget during the year-end. While headline PBT dropped by 37%, core PBT (after stripping out the impairment losses totalling to RM26.0m) came in higher at RM58.3m (+25%).

 On a separate announcement, the group also proposed to change its name to “Star Media Group Berhad’, which we believe is to reflect its current businesses.

Outlook  Our view on the industry adex outlook remains unchanged where we believe the adex sentiments are still being overshadowed by: (i) the current rising cost of living, and (ii) the upcoming GST implementation. Nevertheless, we believe there is a fair chance for adspends to improve in both February and March due to the potential pre-GST fever but is expected to soften thereafter.

 Its event division contribution, meanwhile, remains a wildcard to the group’s earnings

Change to Forecasts  We have lowered our FY15E NP marginally by 0.9% after fine-tuning but raised our full-year DPS forecast to 18.0 sen (from 15.0 sen previously). Meanwhile, we also take this opportunity to introduce our FY16E numbers. Rating Downgraded to UNDERPERFORM due to the limited capital upside from here. Having said that, its high dividend yield could provide some cushions to its share price.

Valuation  Maintained TP at RM2.26 based on a targeted FY15E PER of 11.8, representing -2.0x SD below its mean.

Risk to Our Call  Improvement in adex sentiment.

Source: Kenanga