Period

3Q15/9M15

Actual vs. Expectations

Below Expectations. STAR’s 9M15 PATAMI of RM83.5m (-7% YoY) failed expectations, accounting for 61.8% of our and 62.1% of the street’s full-year estimates.

On our end, the key negative culprits were mainly attributed to the higher-than-expected: (i) direct cost (from Cityneon), (ii) operating expenditures, and (iii) finance cost.

Dividends

No dividend was declared during the quarter, as expected. STAR has earlier highlighted its intention to maintain 18.0 sen full-year DPS should its core PBT is maintained at c.RM190m.Nevertheless, we believe this is a tall order judging from its uninspiring 9M15 results. Thus, we are keeping our 6.0 sen DPS estimate for the coming 4Q15, which could bring its FY15 total DPS to 15.0 sen.

Key Results Highlights

YoY, revenue in 9M15 inched marginally by 0.7% to RM738m due to higher contribution from the event segment but largely offset by the lower turnover in the Print and Radio divisions. Its PBT, meanwhile, dipped by 9.4% to RM110m, no thanks to the higher direct costs (from Cityneon) and lower Print segment revenue.

Print and Digital revenue contracted by 7.9% mainly due to lower print revenue as a result of the cautious spending post GST implementation, the weakening MYR and also the softer local economy. PBT, however, improved slightly by 2.4% 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 RM0.2m (vs. – RM2.6m a year ago) thanks to the absence of amortisation cost on Capital FM’s radio license. Television division’s revenue improved to RM8.7m (14.2%) but continued to suffer a LBT on the back of higher direct cost and weaker MYR. On the other hand, Event division’s revenue advanced by 31% as a result of higher event & thematic revenue but incurred a LBT of RM3.6m due to lower profit margin and the RM2.2m acquisition related cost of Victory Hill Exhibitions Pte Ltd that was recognised in 2Q15.

QoQ, 3Q15 turnover dipped by 4.4% as a result of lower print & digital contribution (-5%) event revenue (-7%). Its PBT, however, plunged by 32% to RM29.2m due to the higher direct and operating costs incurred in both Print and Event divisions.

Outlook

Our gloomy adex outlook remains unchanged and we believe the adex 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 Ringgit, and (iii) the weak consumer sentiment caused by the GST implementation, where the market may take months to digest.

Change to Forecasts

We have slashed our FY15E/16E NPs by 11.5%/8.1% after raising assumptions for: (i) the event division’s direct cost assumption to 70% (from 67% to event’s division turnover previously), (ii) operating costs (i.e. distribution and administrative expenses), and (ii) finance cost.

Rating

Maintained MARKET PERFORM

Valuation

Lowered TP to RM2.36 (from RM2.52 previously).

Our valuation is based on FY16E EPS of 17.5 sen with an unchanged targeted PER of 13.5x, representing -1.0x SD below its mean.

Risk to Our Call

Improvement in adex sentiment.

Source: Kenanga Research - 17 Nov 2015