Period

1Q15

Actual vs. Expectations

STAR’s core 1Q15 NP of RM26.5m (3% YoY) came in within expectations, accounting for 19.3% of our, and 18.1% of the street’s, full-year estimate. Note that the group’s 1Q numbers normally make up c.18%-22% of the full-year NP, based on the past four financial years' performance.

Dividends

No dividend was declared during the quarter, as expected.

Key Results Highlights

YoY, 1Q15 revenue inched higher by 3% to RM217m due to higher revenue contribution from the Event division. Its PBT, meanwhile, soared 74% thanks to the lower base effect due to the RM9.6m Voluntary Separation Scheme cost that was incurred in 1Q14. Despite the strong PBT growth, reported PATAMI was up by 63% to RM26.5m partially offset by the higher effective tax rate due to the tax impact of nondeductible expenses.

Print and Digital revenue contracted by 0.3% mainly due to lower print circulation and digital revenue while its overall adex was affected by poor consumer sentiment, dampened by higher cost of living and impending implementation of GST then. Radio broadcasting segment’s revenue, meanwhile, declined by 2% as a result of the uncertainties and challenging market environment. The segment, however, recorded a small PBT of RM0.77m thanks to the absence of amortisation cost on Capital GM’s radio license. Television division’s revenue improved marginally by 5% to RM2.85m but continued to suffer a LBT due to higher direct cost. On the other hand, Event division’s revenue advanced by 23% as a result of higher interior projects completed by Cityneon but continued to suffer a LBT of RM5.3m, no thanks to the higher direct cost and lower profit margin.

QoQ, 4Q14 turnover dipped by 23% as a result of seasonal factors. Its PBT, however, increased by 16% to RM37.6m due to the absence of impairment losses recognised in the preceding quarter.

Outlook

Our gloomy adex outlook remains unchanged and we believe the adex sentiments are still being overshadowed by: (i) the current rising cost of living, and (ii) the weak consumer sentiment caused by the GST implementation, where the market may need to take 3-6 months to digest.

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

STAR has devised a growth strategy recently based on five key strategies, where the group targets to enhance its corporate governance, improve on efficiency and cost control, rebuild its core assets, digital transformation and look at strategic and synergistic acquisition.

Change to Forecasts

We have raised our FY15E/16E NPs marginally by 0.7%/0.5% after fine-tuning.

Rating

Upgraded to MARKET PERFORM as the recently unveiled strategies may draw investors’ attention if implemented prudently. On top of that, its high dividend yield could provide some cushions to its share price during uncertainties.

Valuation

Raised TP to RM2.49 (from RM2.26 previously) based on higher targeted FY15E PER of 13.3x (from 11.8x previously), representing -1.0x SD below its mean.

Risk to Our Call

Improvement in adex sentiment.

Source: Kenanga Research - 20 May 2015