STAR has received shareholders’ consent to dispose the entire stake in its event arm – Cityneon. The disposal is set to unlock STAR’s investment in Cityneon and pave the way for it to concentrate on the expansion of its primary business activities. Having said that, in view of the hefty net proceeds arising from the disposal, we do not discount potential special goodies (of up to RM0.487 dividend/share) may be proposed should there is no major capex or acquisition in the pipeline. All in, we maintain our FY17E/FY18E core PATAMIs estimates but raised our STAR target price to RM2.35 after pegging the higher targeted FY18 PER of 22.6x. The stock rating, meanwhile, is also upgraded to MARKET PERFORM (vs. UNDERPERFORM previously).

Received a green light to dispose Cityneon. STAR has received shareholders’ approval to dispose its 52.51% equity stake in Cityneon Holdings Ltd. The group has received 94.977% voting by poll during the Extraordinary General Meeting held last Friday. To recap, STAR has entered into a conditional share purchase agreement with Lucrum 1 Investment in mid-May for the proposed disposal of its entire 52.51% equity stake in Cityneon Holdings Ltd for SGD0.90/share (or equivalent RM360.18m or SGD115.61m) in cash. The proposed disposal would allow STAR to receive a net proceed of RM359.6m (or RM0.487/share) with a realized gain on disposal of c.RM214.07m (or c.RM0.29/share) from its investment in Singaporelisted events and exhibition subsidiary. Barring any unforeseen circumstances, we understand that management is targeting to complete the disposal by 3QCY17.

Focus on its core strength. As STAR’s core strength lies within the print and digital business segments, it has been enhancing efforts to expand into new digital media products. With the proposed disposal valued at 3.18x P/BV (or c.33x FY16 PER, which we believe the valuation is rich), it will allow STAR to unlock its investment in Cityneon and concentrate on the expansion of its primary business activities.

Short-term gain but medium-term pain. In view of the decent net proceeds arising from the proposed disposal, we do not discount that a potential special dividend (of up to RM0.487/share) may be proposed should there is no major capex or acquisition in the pipeline. On the flip side, without Cityneon’s earnings contribution, STAR is expected to face greater challenge given the absence of the events and exhibition subsidiary’s contribution is unlikely to be offset by other segments/ventures (i.e. Dimsum and others) over the short-to-medium term. On top of that, the country’s adex outlook is set to remain challenging in CY17 despite several adex-friendly events in the 2H17. Note that, the country’s gross adex (ex-pay TV) dipped 13.6% YoY to RM2.48b during the first five-month of 2017. With the continued changes in consumer habits, behavior, lifestyle and technologies, the traditional media mediums (i.e. TV, Newspaper, and etc.) are set to face greater challenges from the social network during the transformation wave.

Maintain earnings forecast but raised target price to RM2.35. We are keeping our STAR’s FY17E/FY18E core earnings forecasts unchanged given that we had earlier removed Cityneon’s contribution from our earnings estimate in conjunction with the recent 1QCY17 result review. Having said that, the group’s share price is expected to remain steady (if not better) for now in view of the potential special goodies ahead. With that, we have raised our STAR target price to RM2.35 (vs. RM1.85 previously) with higher targeted FY18E PER of 22.6x, representing a 1.0x standard deviation above its 5-year mean (vs. 17.9x (5-year mean) previously).

Source: Kenanga Research - 10 Jul 2017