STAR’s print segment is expected to remain challenging in FY17 in view of the uninspiring adex outlook while 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. We made no changes to our FY17 earnings estimate for now (but with some upside bias), pending an analysts’ briefing this Thursday. Maintain MARKET PERFORM with unchanged TP of RM2.32, based on targeted FY17E PER of 17.1x, representing an unchanged targeted 5-year mean.

Boosted by a higher-than-expected disposal gain. FY16 PATAMI of RM110m (-17% YoY, mainly dragged by the lower performance of its Print segment) was above our/market’s expectations (at 136%/129%, respectively) due to higher-than-expected disposal gains of two radio stations (RM40m vs. RM20m as per management earlier guidance). On a normalized basis, its core PATAMI of RM74m (-44% YoY after stripping- off RM21.1m gain on deregistration of a subsidiary and RM40.3m gain on disposal of a subsidiary but added-back the impairment on goodwill of RM19.8m) also came in above our expectation (at 118%) as a result of the lower-than-expected OPEX which we believe was partially due to its lower start-up losses on its OTT venture -Dimsum.

Dividend surprise. Despite the group’s core PBT of RM105m failing to achieve the management’s target (to sustain at FY15 level at c.RM170m), it has declared a second interim dividend of 9.0 sen (vs. our 6.0 sen forecast), bringing its full-year DPS to 18.0 sen (FY15: 18.0 sen), which is a pleasant surprise to us.

YoY, FY16 revenue declined by 9% to RM932m due mainly to the lower Print (-15% to RM550m) and Radio (-13% to RM42m) segments’ turnover as a result of the poor consumer and business sentiments. PBT, meanwhile, weakened by 14% to RM146m due to lower print revenue as well as RM21.4m impairment on goodwill and other investment. However, this was offset by the gain on disposal and deregistration of subsidiaries, which amounted to RM61.3m. QoQ, 4Q16 turnover increased by 26%, thanks to higher contribution from Cityneon. PATAMI, meanwhile, soared 249% as a result of net gain arising from gain on disposal of a subsidiary and impairment on goodwill.

Print and Digital revenue contracted by 15% 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 widened its LBT to RM2.3m from RM1.0m a year ago. Television division’s revenue improved by 12% and managed to narrow its LBT to RM7.1m vs. RM8.0m in FY15. On the other hand, Event division’s revenue advanced by 8.5% mainly driven by higher contribution from exhibitions and intellectual property rights (IPR) held by Cityneon. Note that, IPR had contributed 18.3% (or RM55m) of Cityneon’s revenue in FY16 with PBT soaring to RM23.6m as compared to RM2.4m a year ago. The strong IPR contribution has led the segment’s PBT to soar 212% to RM25m.

Outlook for this year is expected to remain challenging as a result of subdue adex sentiment. Having said that, its Event division is expected to remain robust, driven by its Avengers and Transformers IP rights.

Source: Kenanga Research - 28 Feb 2017