What’s New

• 4Q16 missed expectations again with continued weakness in print adex

• Declared 9sen DPS (in line)

• Cut FY17-18 EPS by 16-19%

• Downgrade to FULLY VALUED with RM1.95 TP

No respite for print. We downgrade Star Media Group (Star) to Fully Valued with a lower TP of RM1.95. Adex revenue for Star has been on a downtrend since 2012, and the accelerating pace of decline suggests that this is becoming more of a structural issue rather than cyclical, in our view. Anecdotal evidence points to the structural shift towards online and digital media advertising which is gaining more interest from advertisers.

Dividend payout not sustainable in the long run. In view of the continuous decline in print adex, the sustainability of Star’s 18sen annual DPS in the long run is questionable, though it can be funded in the near-term due to its sizeable net cash position and low annual capex requirement. We would prefer a direct exposure to SGX-listed Cityneon (BUY; S$1.26 TP) which offers more upside for investors without the baggage of a weak Malaysian print operation.

Valuation:

Our revised SOP-based RM1.95 TP is derived from: 1) 12x FY17 EPS for its Malaysian operations; 2) 52.6%-stake in Cityneon valued at DBS’ TP of S$1.26; and 3) FY17 net cash of about RM0.45/share. Downgrade to FULLY VALUED.

Key Risks to Our View:

Potential new players in the market. Several online news portals had applied for newspaper publishing licences in the past, but none were approved. New entrants in the market could dilute Star’s circulation as well as advertising sales.

Source: Alliance Research - 28 Feb 2017