STAR posted a decent set of FY18 results and beat our as well as the street’s conservative forecasts. Post review, we have raised our FY19E PATAMI by 7% and introduced FY20E numbers. With no immediate earnings catalyst in place coupled with uninspiring adex outlook, we are keeping our UNDERPERFORM call with an unchanged TP of RM0.600, based on targeted FY19E P/NTA of 0.53x.

Above expectations. FY18 core PATAMI of RM17m (-59% YoY) came in above expectations at 111%/107% of our/market’s full-year estimates. On our end, the key positive deviations were mainly due to higher-than-expected print and event segments’ turnovers vs. our overly conservative estimate previously. It declared 3.0 sen interim dividend (above our estimate of 1.7 sen but below the street’s estimate of 3.5 sen) with ex-date set at 27-March.

YoY, FY18 revenue dipped by 16% to RM393m, mainly due to the lower Print and Digital (-17% to RM339m) segment’s turnover as a result of the weak consumer and business sentiments. PBT, meanwhile, plunged by 78% to RM9m, due mainly to the absence of gain on disposal of Cityneon (which amounted to RM207m previously) and Mutual Separation Scheme/Early Retirement Option (MSS/ERO) expenses. Excluding the EI, the group’s PBT would have recorded an increase of 27%, thanks to better cost management following the MSS/ERO exercise in 4Q17 and lower depreciation expenses from Print segment.

QoQ, 4Q18 turnover improved by 2% due to higher revenue from event and exhibition segment. Group PBT, however, recorded a loss of RM13m due to one-off MSS expenses of RM15.8m in Print and Digital segment.

Print and Digital revenue contracted by 17% in FY18 due to lower adex revenue as a result of slowing economy and policies uncertainties, which affected the overall adex negatively. The segment, however, recorded a slightly higher PBT of RM27.5m (excluding one- off MSS/ERO expenses) vs. RM26.5m in FY17. Radio broadcasting revenue, meanwhile, declined by 18% as a result of the poor sentiment arising from the sluggish economy in FY18. PBT, meanwhile, plunged by 48% to RM2.9m in tandem with a lower turnover. On the other hand, Event division’s revenue (which consists of I.Star Ideas Factory) surged by 80% YoY (as a result of higher exhibitors' participation) in FY18 with higher PBT of RM2.7m vs. RM0.2m a year ago.

Raised FY19E PATAMI by 7% after revising our print and event segments’ revenue and OPEX assumptions, post the results review. We also introduced our FY20E numbers and expect the group’s core PATAMI to growth 14% YoY, underpinned by continued cost optimisation and top-line growth. Meanwhile, we also raised our FY19E DPS estimate to 2.1 sen (vs. 1.7 sen previously), implying a payout ratio of 80%.

Maintain UNDERPERFORM as the group’s bread-and-butter print segment continued to face challenges with diminishing ads revenue. Our TP, meanwhile, is maintained at RM0.600 based on an unchanged targeted P/NTA of 0.53x. The targeted P/NTA also implied c.30% premium to the recent M&A transaction where 31.6% stake of Utusan Melayu Bhd’s (which publishes the Utusan Malaysia Malay-language daily) changed hand at 19.0 sen per share (or implied c.0.4x P/NTA). We believe the premium attached is justifiable given STAR being in a much better financial position than Utusan, which currently is still loss- making.

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 adex shifts towards digital platforms, and (ii) longer-than-expected gestation period for its OTT venture and future M&As.

Source: Kenanga Research - 27 Feb 2019