We attended STAR’s post-2Q15 results’ briefing yesterday. The key highlights of the briefing focused on: (i) dividend, (ii) adex outlook, (iii) forward business strategies, and (iv) an update on its existing businesses. The group reiterated its intention to keep its annual FY15 DPS target at 18.0 sen should its normalised PBT is maintained at c.RM190m level. Meanwhile, the group also shared its Internet TV vision and expect Cityneon to secure more exhibition rights in September. Post-briefing, there were no changes to our FY15-FY16 estimates. Our STAR’s target price remains unchanged at RM2.60, based on a targeted FY16E PER of 13.1x (-1.0x SD below its mean).

FY15 DPS likely to be kept at 18.0 sen if the core PBT is maintained at c.RM190m. STAR intends to sustain its DPS of 18.0 sen in FY15 should the core PBT achieve a similar quantum as for the past two financial years. STAR distributed an annual DPS of 18.0 sen and 15.0 sen in FY14 and FY13, respectively, representing c.57.5% and 69.6% payout, respectively, on its core PBT. With no exceptional item expected to arise, market is targeting the group to achieve RM191.8m PBT in FY15 with a total annual DPS of 17.1 sen. We, however, are more conservative and expect the group to record only RM183m (due to lower revenue estimation in contrast to the consensus). As a result, we are keeping our FY15E DPS unchanged at 15.0 sen, representing c.61% payout on its FY15E core PBT. Our FY16E annual DPS remains at 15.0 sen.

Expecting a flattish gross adex growth rate in 2H15. STAR is keeping its cautious view unchanged on the adex outlook despite the 2H traditionally perform better than the 1H due to seasonally factors. Management believes the gross adex to record at flat, at best, in the 2H15 in view of the (i) poorer crude and pal oil prices, (ii) depreciation of the MYR against other currencies, (iii) political & economic uncertainty; and (iv) the prolonged poor consumer spending post the GST implementation. Note that, the country’s YTD July gross adex growth has lowered to RM7.9b (-1.0% YoY) after posted another vulnerable number in July (-7.0% MoM). Stripping off the Pay-TV segment contribution, the YTD July gross adex weakened by 9.2% YoY to RM4.6b.

Expanding into the video segment through leveraging on its core consumers across the entire STAR Media group’s audiences. The group is targeting to launch its new Internet TV - STAR TV in early September with focus on short video-clips during the initial stage. Meanwhile, STAR has revamped its online advertising since June, which is now powered by its in-house audience targeting system called A.I.M., which allows advertisers to promote their products to specific consumer groups that are segmented based on their interest, behaviour and demographic profiles. With a 5.5m strong audience across print, radio, TV and digital platforms, AIM promises 100% viewable content by placing ads “above the fold”, according to the management.

Another “Marvel-lous” kind of deal in the making. STAR indicated that its 64.1%-owned subsidiary Cityneon Holdings Ltd is in talks to secure another rights to provide exhibition services akin to the acquisition of Victory Hill Exhibition Pte Ltd in April. No further detail was provided by the management as it is still at the discussion stage. To recap, Cityneon has secured the rights to provide exhibition services for the famous Marvel characters in a S$21m deal with Victory Hill Exhibition Pte Ltd, which provided a profit guarantee of S$2.8m for the first year of acquisition. To partially fund the purchase consideration, Cityneon has proposed a 1-for-1 rights issue at an exercise price of SGD18.0 sen per share. Subsequently, STAR’s shareholders have approved the proposal and agreed to fork out S$10.2m to subscribe for all its rights entitlement. STAR’s equity stake in Cityneon is expected to be diluted to 51.1% followed the completion of acquisition by end-September.

Source: Kenanga Research - 25 Aug 2015