News

STAR has entered into a Sale and Purchase Agreement with Juita Vinden International Ltd to acquire the remaining 49% equity in Li TV Holdings Ltd for USD1.5m (or c.RM6.26m).

Prior to the acquisition, Li TV was a 51:49 jointventure company between STAR and Juita Viden.

Li TV is an investment holding company incorporated in Hong Kong and its subsidiaries are principally engaged in the business of operating and distribution of an English language lifestyle television channel ‘Life Inspired’ that broadcasts pan-regionally across Asia.

Comments

Although the proposed acquisition appears inexpensive in contrast to its earlier 51%-stake acquired in July-2011 (for RM35.0m), we are NEUTRAL on the deal given that the TV channel has yet to show any earnings contribution to the group.

STAR has earlier guided for a long gestation period (c. 4-5 years) when they first ventured into TV channel’s investment in 2011 with an aim to extend its multimedia offerings and diversify its revenue base towards TV while getting a footprint into the Asian region.

As of 1H15, Li TV recorded a turnover of USD1.38m but continued to suffer losses at both the EBITDA and LBT levels at USD0.95m and USD0.96m, respectively. Note that, the TV channel contributed c.USD3m each in FY13 & FY14 but incurred c.USD2.0m losses at the LBT level.

Outlook

Our view on the industry adex outlook remains unchanged where we believe the adex sentiment is still being overshadowed by: (i) the current rising cost of living, and (ii) the GST impact; thus adex growth is likely to be flattish for CY15. Note that, YTD August’s adex was depressed by 1.3% YoY.

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

Forecast

No change in our FY15-FY16 earnings estimates on negligible impact.

Rating

MAINTAIN MARKET PERFORM in view of the continued gloomy adex outlook coupled with a challenging economy outlook as a result of the weakening Ringgit, which could lead advertisers to re-visit their A&Ps budget. Having said that, its high dividend yield could provide some cushions to its share price.

Valuation

Maintain our TP at RM2.52 based on a targeted FY16E PER of 13.2x, representing -1.0x SD below its mean.

Risks to Our Call

Improvement in adex sentiment.

Source: Kenanga Research - 19 Oct 2015