Period

2Q15/1H15

Actual vs. Expectations

STAR’s 1H15 PATAMI of RM59.8m (-7% YoY) came in within expectations, accounting for 41.6% of both our and the street’s full-year estimate. Note that the 1H normally made up c.38%-46% of the full-year PATAMI, based on the past three-year financial performance.

Dividends

Declared a first interim dividend of 9.0 sen (1H14: 9.0 sen) and set to go "ex" on 22-Sept. For the fullfinancial year, we are keeping our 15.0 sen DPS forecast for now, pending further clarity from management.

Key Results Highlights

YoY, revenue in 1H15 marginally declined by 0.4% to RM484m due to lower contribution from the print division. Its PBT, meanwhile, improved 8% thanks to higher margin recorded in its print & digital segment (25.7% vs. 20.5% a year ago) as well as the radio division (1.0% vs. -9.4% in 1H14).

Print and Digital revenue contracted by 8.1% mainly due to lower print revenue as a result of the cautious spending post the GST implementation. PBT, however, improved sharply due to the absence of VSS expenses (1H14: RM11.5m). Radio broadcasting segment’s revenue, meanwhile, declined by 4.1% as a result of the uncertainties and challenging market environment. The segment, however, recorded a small PBT of RM0.23m thanks to the absence of amortisation cost on Capital FM’s radio license. Television division’s revenue was lower marginally by 0.5% as a result of the decline in advertising revenue and continued to suffer a LBT on the back of higher direct cost. On the other hand, Event division’s revenue advanced by 30% as a result of higher event & thematic revenue but incurred a small LBT of RM0.1m due to the RM2.2m acquisition related cost of Victory Hill Exhibitions Pte Ltd recognised by Cityneon.

QoQ, 2Q15 turnover dipped by 3% as a result of lower print & digital contribution (-15%) but partially offset by higher event revenue (33%). Its PBT, however, declined by 19% to RM42.9m due to the higher operating cost incurred in both Print and event divisions.

Outlook

Our gloomy adex outlook remains unchanged and we believe the adex spending sentiment is still being overshadowed by: (i) the current rising cost of living, (ii) higher cost of doing business as a result of the weakening in Ringgit, and (iii) the weak consumer sentiment caused by the GST implementation, where the market may need to take months to digest.

Despite the challenging adex outlook, STAR expects the country’s advertising expenditure to be flat in 2H15.

Change to Forecasts

We have reduced our FY15E/16E NPs by 2.8%/1.7% after fine-tuning and lowering our margins assumptions.

Rating

Maintained MARKET PERFORM (despite the current share price could potentially provide a total return of more than 10% from here) in view of the continued gloomy adex outlook coupled with challenging economy outlook as a result of the weakening Ringgit, which could lead advertisers to re-visit their A&Ps budget. Having said that, we believe the group’s high dividend yield could provide some cushions to its share price.

Valuation

Lowered TP to RM2.60 (from RM2.63 previously) based on an unchanged targeted FY16E PER of 13.1x, representing -1.0x SD below its mean.

Risk to Our Call

Improvement in adex sentiment.

Source: Kenanga Research - 19 Aug 2015