STAR’s 9M16 core PATAMI came in below expectations due to the weaker-than-expected 3Q16 performance, which was mainly pulled down by the feeble top line performance and thinner margins. No dividend was declared during the quarter, as expected. Moving forward, while the group’s print segment remains challenging, its Event division (with improved contribution from the current and potential third IP rights and expanded exhibition installation base) is expected to provide some earnings cushion. Post results review, we have lowered our FY16E/FY17E core PATAMI by 34%/12%. Maintain MARKET PERFORM but with lower TP of RM2.51 (vs. RM2.60 previously) based on targeted FY17E PER of 16.1x (vs. 14.6x previously), representing an unchanged targeted 5- year mean. The group’s high dividend yield of 7.4% is expected to provide some cushion against volatility.

Below expectations. 9M16 core PATAMI of RM52.4m (-37% YoY after stripping-off RM21.1m gain on deregistration of a subsidiary in 2Q16) came in below expectations, accounting for 47%/50% of our/street’s fullyear estimates. The weaker-than-expected 9M16 result was mainly dragged by its feeble 3Q performance as a result of: (i) the lower print segment’s turnover (-13% YoY due to softer advert revenue), (ii) weaker event division’s turnover (-31% YoY), and (iii) thinner margins as a result of higher OPEX. Note that the group’s 9M results normally make up c.63- 71% of the full-year PATAMI, based on the past three years.

No dividend was declared during the quarter, as expected. For the full-financial year, we are keeping our DPS estimate unchanged at 18.0 sen (1H16: 9.0 sen), which translates into a dividend yield of 7.4%.

YoY, 9M16 revenue declined by 9% to RM672m due mainly to the lower print segment’s turnover (-13% YoY to RM421m) as a result of the poor consumer and business sentiments. The frail print segment performance coupled with higher minority interest have led the group to report lower reported PATAMI of RM70.5m (-15.6% YoY).

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 17%. Poor sentiment and the sluggish economy have affected the airtime revenue and resulted in LBT of RM3.5m vs. PBT of 0.2m a year ago. Television division’s revenue fell by 13% and continued to suffer a LBT of RM6.3m as a result of declining distribution revenue. On the other hand, Event division’s revenue inched up by 1.5% mainly on contribution from exhibitions and intellectual property rights held by Cityneon. The segment recorded RM16.3m PBT vs. LBT of RM3.6m a year ago.

QoQ, 3Q16 turnover decreased by 19%, no thanks to lower revenues from most of the segments. The dip coupled with higher operating costs resulted in lower PBT/PATAMI of 39%/52%.

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 its Avengers and Transformers IP rights.

Reduced FY16E/FY17E core PATAMI by 34%/12%, after: (i) incorporating the weak 3Q16 numbers, (ii) reducing our PBT margin assumptions to 14.6%/18.5% (vs. 19.4%/20.6% previously), and (iii) raised RM/USD exchange rate to RM4.10/RM4.30 (from RM4.05/RM4.10 previously)

Source: Kenanga Research - 22 Nov 2016