STAR’s 1H16 core PATAMI came in largely within expectations. It declared a higher-than-expected first interim dividend of 9.0 sen. Moving forward, while the group’s print segment remains challenging, its Event division is likely to remain robust underpinned by its various IP rights. Post results review, we have tweaked our FY16E/FY17E core PATAMI by -8.1%/+3.3%, respectively. Maintain MARKET PERFORM but with higher TP of RM2.60 (vs. RM2.37 previously) based on higher targeted FY17E PER of 14.6x (vs. 13.7x previously), representing the 5-year mean. The group’s high dividend yield of 6.9% is expected to provide some cushion against volatility.

In-line. STAR’s 1H16 core PATAMI of RM41.1m (-31% YoY after strippingoff RM21.1m gain on deregistration of a subsidiary) came in largely within expectations, accounting for 36%/37% of our/street’s full-year estimates. Note that the group’s 1H normally made up c.38%-45% of the full-year PATAMI, based on the past three years. On a reported basis, STAR’s 1H16 PATAMI was slightly lower by 1.1% due to lower print segment performance but largely offset by the gain of deregistration of a subsidiary and higher performance by the exhibition and Victory Hill Exhibitions Group under Cityneon.

Declared first interim dividend of 9.0 sen (vs. our 6.0 sen estimate), which ex-date has been fixed at 28-Sep. For the full financial year, we have raised our DPS estimate to 18.0 sen (vs. 15.0 sen previously), implying a dividend pay-out ratio of 97%, which translates into a dividend yield of 6.9%.

YoY, 1H16 revenue dived by 4% to RM465m due to lower print revenue, no thanks to the lower advertising revenue (-11.9%). PBT, however, was flat at RM81m as a result of better stronger performance by Cityneon’s exhibitions and intellectual property rights division. On top of that, the RM21.1m gain from the deregistration of a subsidiary also cushioned the weak performance of the print division.

Print and Digital revenue contracted by 13% due to lower adex revenue amid economic uncertainties, and poor consumer sentiment, which affected the overall adex negatively. Radio broadcasting segment’s revenue, meanwhile, declined by 13%. Poor sentiment and the sluggish economy have affected the airtime revenue and resulted in LBT of RM2.3m vs. PBT of 0.23m in 1H15. Television division’s revenue fell by 9% and continued to suffer a LBT of RM4.5m due to higher direct cost. On the other hand, Event division’s revenue advanced by 22% mainly on contributions from exhibitions and intellectual property rights held by Cityneon. The segment recorded RM18.3m PBT vs. LBT of RM0.12 a year ago.

QoQ, 1Q16 turnover advanced by 34% driven by higher Event segment contribution. PBT soared by 161% due to higher profit recorded by the Event segment and gain on deregistration of a subsidiary company.

Outlook for this year remains challenging as adex sentiment remains cautious due to economic uncertainties and weak commodity prices. Having said that, its Event division is expected to remain robust, driven by the Avengers and Transformers IP rights.

Tweaked FY16E/FY17E core PATAMI by -8.1%/+3.3%, after imputing: (i) lower print division revenue to RM476m/RM477m (-14%/-17%), (ii) higher Event division revenue of RM362m/RM420m (+13%/+28%) with better GP margin of 40% vs. 32% previously, and (iii) lower RM/USD exchange rate to RM4.05/RM4.10 as compared to RM4.30 previously.

Source: Kenanga Research - 23 Aug 2016