• ‘Print and digital’ segment continued to underperform

• Cityneon was the star performer in FY16

• Annual dividend kept at 18sen per share

• Maintain NEUTRAL with an unchanged target price of RM2.46 per share

‘Print and digital’ segment underperformed. Star Media Group Bhd (Star) reported 4Q16 earnings of RM39.4m. After excluding exceptional items amounting to RM22.4m, the normalised earnings came in at RM17.0m (-65.6%yoy). The bulk of the exceptional items pertained to gain on disposal of Capital FM and Red FM (RM40.3m) and impairment on goodwill (-RM19.8m). The decline in earnings was impacted by lower contribution from the ‘print and digital’ segment.

Below expectations. The weaker 4Q16 normalised earnings led to lower FY16 normalised earnings of RM67.2m, a reduction of - 49.5%yoy. All in, Star’s FY16 financial performance came in severely below ours and consensus’ expectations, accounting for 70.7% and 86.3% of FY16 full year earnings estimates respectively.

Dividend. In 4Q16, Star declared an interim dividend of 9sen per share. On a cumulative basis, Star managed to maintain its annual dividend of 18sen per share or RM132.8m in FY16, which is better than our expectation of 14sen per share. This is supported by the group’s healthy cash balance. As at 4Q16, the group’s cash reserve remains healthy at RM499.6m (68sen per share).

Impact. We are keeping our FY17 earnings and dividend estimates unchanged at this juncture pending further details from the upcoming analyst briefings.

Target price. We are maintaining our target price of RM2.46 per share based on DDM valuation methodology (discount rate of 6.1%).

Maintain Neutral. The group is slowly shifting its business model which predominantly places heavy reliance on the print and digital segment. This is done by putting more emphasis on the exhibition and digital segments. However, we are concern on the ability of these segments to mitigate for the ailing print and digital segment. On another note, at current trading price, we view that the share price provides an attractive dividend yield of approximately 6.0%. All factor considered, we are maintain our NEUTRAL stance on Star.

Source: MIDF Research - 28 Feb 2017