STAR is likely to change its dividend distribution frequency to annually from semi-annually previously. Moving forward, the group planned to mirror Singapore Press Holdings’ road path to venture into the non-media segments. We trimmed FY18-19E earnings by 3-5% post results briefing. Maintain UNDERPERFORM call with lower TP of RM0.95.

Establishing a new dividend distribution trend? STAR bucked its dividend practice (where the group had distributed dividends semiannually since more than 10 years ago) by not rewarding shareholders in conjunction with its 2Q18 results release. The absence of dividend (in 1H18) has shocked the market and led a negative reaction to its share price amid a disappointing report card. To recap, STAR’s 1H18 core PATAMI of RM12.7m was below expectations and merely accounted for 25%/27% of our/market’s full-year estimates, owing to the lower-thanexpected top-line and higher-than-expected OPEX as well as taxation. Moving forward, in view of the challenging print segment’s outlook coupled with potential new venture ahead, we believe the group is likely to preserve its cash and merely to reward its shareholders annually rather than semi-annually.

To end printing operations in Penang. The group had earlier announced the ceasing of its printing operations (at Bayan Lepas, Penang), effective September 2018 and expected the move to moderate its overall operating costs moving forward. There are about 100 employees in its Penang printing operations who are likely to be retrenched with an estimated retrenchment fee set at c.RM10m.

Looking ahead, while STAR is set to continue its on-going transformation journey (with an aim to: (i) continue to be lean & economically sustainable, (ii) reform he group’s organisation structure, and (iii) investing and building capabilities in analytics and technology to enhance advertising effectiveness), it also plans to unlock the value of its properties (including lands) and continue to look for new investments (in both the media and non-media sectors) to complement and enhance its existing assets. Besides, STAR also planned to mirror Singapore Press Holdings Ltd’s road path (where the Singapore based media company has successfully transformed itself to become a conglomerate company which consists of the media, property & real estate asset management, aged care and digital investments' businesses) and may consider venturing into the property development/management segment given the group is currently holding several strategic land banks in Pulau Pinang, Shah Alam and Bentong. We understand that management is currently conducting a detailed study and exploring a potential business model in the property sector.

Reduce FY18-19E earnings by 3.6-4.6%, respectively, after revising our newsprint price assumption to USD600/MT (vs. USD570/MT previously, due to the supply shortage globally) to align with the latest trend. Our FY18 reported PATAMI, meanwhile, is also lowered by c.RM10m to RM21.8m to account for the upcoming retrenchment cost.

Maintain UNDERPERFORM rating as the group’s bread-and-butter print segment continues to face challenges with diminishing ads revenue. Our TP, meanwhile, is lowered to RM0.95 (vs. RM1.00 previously), based on targeted FY19 P/NTA of 0.82x (from. 0.84x previously), implying an unchanged -2SD below its 3-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, and (ii) longer-than-expected gestation period for its OTT venture and future M&As

Source: Kenanga Research - 27 Aug 2018