1H18 results came in below our expectation and the absence of dividend was a negative surprise. We downplay the group’s intention to expand beyond the media space and slashed our FY18/19E earnings by 35%/22% post the results review. Maintain UNDERPERFORM with lower TP of RM1.00 based on targeted FY19E P/NTA of 0.84x, implying - 2SD below its 3-year mean.

Below expectations. 1H18 core PATAMI of RM12.7m came in below our expectation and accounted for 25%/27% of our/market’s full-year estimates. On our end, the key discrepancies were mainly due to lower-than-expected top-line and higher-than-expected OPEX as well as taxation. No dividend was announced during the quarter (vs. 36.0 sen in 1H17, of which 30.0 sen was for a special dividend post the disposal of Cityneon), which was a negative surprise as the group tended to reward shareholders’ semi-annually.

YoY, 1H18 revenue dipped by 12% to RM208m due mainly to the lower Print and Digital (-13% to RM178m) segment’s turnover as a result of the weak consumer and business sentiments. PBT, however, surged by 184% to RM20m, thanks to better cost management, lower depreciation expenses from Print segment coupled with an absence of impairment of printing assets as well as Mutual Separation Scheme/Early Retirement Option exercise. QoQ, 2Q18 turnover declined by 9% due to lower print and digital revenue as advertisers remained cautious with their spending ahead of the 14th GE. The weak turnover coupled with higher OPEX and losses from its OTT venture (dimsum) had the group recording lower core PATAMI of RM1.4m vs. RM11.3m in the preceding quarter.

Print and Digital revenue contracted by 13% in 1H18 due to lower adex revenue amid poor consumer sentiment as a result of rising cost of doing business, which affected the overall adex negatively. Nevertheless, the segment recorded a higher PBT of RM19.3m (+74% YoY) due to lower salaries and depreciation expenses but partially impacted by the losses of its OTT venture – dimsum.my. Radio broadcasting revenue, meanwhile, declined by 11% as a result of the poor sentiment arising from the sluggish economy in1H18. PBT, meanwhile, dipped by 23% to RM1.6m in tandem with a lower turnover. On the other hand, Event division’s revenue (which consists of I.Star Ideas Factory) surged by 66% (as a result of higher exhibitors' participation) with higher PBT of RM2.9m vs. RM0.05m a year ago.

Continue searching for new investment opportunities. STAR is actively searching for new ventures especially in the digital sector to further complement and enhance its existing assets. While pursuing a digital focus 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 audiences via latest technologies. At the same time, STAR will continue to optimize costs and improve operating margins.

Slashed FY18E/19E PATAMI by 35%/22% after incorporating the weak 2Q numbers and lowering our revenue and OPEX assumptions, post the results review. Correspondently, we have also lowered our FY18E DPS estimate to 4.0 sen (vs. 6.0 sen previously) but keeping our FY19E DPS unchanged at 6.0 sen which implied a payout ratio of 90%/91%, respectively.

Maintain UNDERPERFORM as the group’s bread-and-butter print segment continued to face challenges with diminishing ads revenue. Our TP, meanwhile is lowered to RM1.00 (vs. RM1.05 previously) after shifting our valuation base year to FY19 with targeted P/NTA of 0.84x (vs. 0.9x previously), implying an unchanged –2SD below its 3-year mean.

Source: Kenanga Research - 20 Aug 2018