We walked away with a NEUTRAL view after attending STAR’s 4Q16 results briefing. While STAR’s print segment is expected to remain challenging in FY17, its Event division (with the improved contribution from its IP rights and expanded exhibition installation base) could provide a much-needed cushion to its earnings. We have tweaked our FY17 earnings marginally post review and introduced FY18E numbers. Maintain MARKET PERFORM with unchanged TP of RM2.32, based on targeted FY17E PER of 17.1x, representing an unchanged targeted 5-year mean. Key upside risks to our call include: (i) higher-than-expected event division’s contribution, and (ii) lower-than-expected content cost.

Dividend aspiration. STAR has announced a total DPS of 18.0 sen in FY16, implying a dividend pay-out of 121% which for the first time exceeded the 100% threshold since 2011. Moving forward, while the group does not have a formal dividend policy in place, we understand that the group is aiming to reward shareholders generously. Based on the past 6- year historical financial performance, it appears that STAR tended to distribute 15.0-18.0 sen DPS annually, which translates into a handsome 6%-8% dividend yields. Thus, we estimate that the group is likely to continue to distribute 18.0 sen dividend in FY17 and FY18 despite the challenging overall adex outlook.

Subdued adex outlook but superheroes may come to the rescue. Although the industry players expect the country’s adex to growth by a low single-digit in CY17, STAR is seeing limited catalyst to drive the adex market, apart from the much-anticipated General Election. Management believes its print division may continue to face some headwinds in view of prevailing weakness in the economic environment as well as consumer sentiment, which could continue to lead advertisers to adopt a cautious mode ahead. Having said that, with improved contribution from the current (Marvels & Transformers) and potential third IP rights and expanded exhibition installation base, its event division (mainly contributed by its 52.3% owned subsidiary – Cityneon, listed in Singapore) could provide a much-needed cushion to its earnings.

Dimsum updates. STAR’s Dimsum, the first homegrown over-the-top content (OTT) apps that mainly focus on offering exclusively Asian content, has managed to draw 100k downloads since the launch (8 Nov 2016). Besides the five keys unique proposition (i.e. 5 concurrent users, HD movie quality with subtitles as well as parental control), the group further enriched its functionality via introducing Chromecast & Airplay as well as offline viewing features in early 2017 to subscribers, who are mainly females from city-centric areas. Expanding its paying subscriber base is the key priority task for the group in FY17 where the group has collaborated with Telcos and property developers to accelerate building its users base. Financial performance wise, despite the group’s reluctance to share any financial numbers for now, we understand that Dimsum is having a similar business model to iFlix. Note that, IFlix has achieved more than 1.5m subscribers (with USD30m spent in content costs) in Malaysia, Thailand and the Philippines at the end CY15, according to press report. The group has recorded RM6.7m in turnover with LBT of RM120m in CY15, based on the latest SSM filling.

Key focus areas for FY17. The group has outlined its priority key focus for FY17, which include: (i) strengthening ads connection with target audience in its print segment, (ii) regional content partnerships and increasing users in digital subscriptions, as well as (iii) enticing more regional (i.e. Taiwan, Australia, China & Middle East) exhibitions for Cityneon.

Raised FY17E core PATAMI by 1% to RM101m after fine-tuning our numbers post 4Q16 result review. Besides, we also take this opportunity to introduce our FY18E numbers, where we expect the group’s core PATAMI to record a 6% YoY growth, mainly underpinned by higher event division performance. We had imputed an estimated 90k/170k paying-sub for Dimsum as well as RM20m-RM30m annual content costs into our FY17- 18E financial model

Source: Kenanga Research - 3 Mar 2017