FY17 results came in above our conservative forecast with no surprises on its full-year DPS. While there are no near-term catalysts in place, the deeper-than-expected recent share price correction could provide some bargain hunting opportunities. Besides, with a potential >8% dividend yield, it could attract yield-hungry investors. Maintain OUTPERFORM with an unchanged TP of RM1.60 based on targeted forward P/BV of 1.44x, impling a -1SD below its 5-year mean.

Beat expectations. FY17 core PATAMI of RM66m (-11% YoY) came in above expectations and accounted for 150%/176% of our/market’s full- year expectations due to our overly conservative forecast. Note that our core PATAMI was derived after removing RM207m gain on disposal of a subsidiary-Cityneon and aggregate RM177.8m of one-off items incurred in 4Q17 (which consist of MSS/ERO expenses, impairment on goodwill and assets, and write-off of PP&E). As expected, a second interim single-tier dividend of 6.0 sen was announced, bringing the full-year DPS to 42.0 sen (vs. 18.0 sen a year ago).

YoY, FY17 revenue (ex-Cityneon – divested operations) dipped by 18% to RM518m due mainly to the lower Print and Digital (-18% to RM449m) segment’s turnover as a result of the poor consumer and business sentiments. Core PBT, meanwhile, plunged by 68% to RM40m, no thanks to the lower Print & Digital segment revenue as well as thinner margin (7.7% vs. 19.5% in FY16). We believe the margin constraint was mainly due to fixed costs as well as start-up losses incurred by its new OTT venture – DimSum. QoQ, 4Q17 turnover declined by 3.5% due to lower print revenue despite a traditional seasonally strong quarter as advertisers continued to stay cautious as a result of poor consumer and business sentiments. The weak turnover coupled with various one-off adjustments led to a LATAMI of RM155m vs. RM230m PATAMI in the preceding quarter.

Print and Digital revenue contracted by 19% due to lower adex revenue amid poor consumer sentiment as a result of rising cost of doing business, which affected the overall adex negatively. Radio broadcasting revenue, meanwhile, declined by 4% as a result of the poor sentiment arising from the sluggish economy. Its PBT, however, recorded a profit of RM5.1m in FY17 vs. LBT of RM2.3m a year ago largely due to cost savings arising from the disposal of Red FM and Capital FM stations. Television division’s revenue plunged by 41% due to cessation of operations in October 2017. On the other hand, Event division’s revenue (which consists of I.Star Ideas Factory) dipped by 30% (as a result of lower exhibitor’s participation) with wider PBT of RM0.35m vs. RM1.4m a year ago.

Continue searching for M&A opportunities. STAR is keeping no secret of eyeing for new ventures to recoup the loss of earnings post the completion of divestment in Cityneon. While pursuing a digital focused approach to its investments, STAR also highlighted that it may consider investments in other industries or non-core businesses. Besides, the group will also continue to defend the Print segment and maintain its engagement with its audiences via latest technologies.

Maintain OUTPERFORM as bargain hunting could potentially arise following the sharp share price correction YTD (-20%). Post result review, we have raised our FY18E core PATAMI by 10% (after revising our newsprint consumption and OPEX assumptions to reflect the latest run rates) and introduced our FY19E numbers. Our target price, however, is maintained at RM1.60 based on targeted P/BV of 1.44x (which implied an unchanged -1SD below its 5-year mean). Key upside risks to our call include: (i) higher-than-expected adex revenue, and (ii) better-than- expected margins following various cost initiative plans. Key earnings downside risks include: (i) persistent weakness in the print adex outlook due to a structural shift in adex towards digital, and (ii) longer-than- expected gestation period on its OTT venture and future M&As.

Source: Kenanga Research - 28 Feb 2018