INVESTMENT HIGHLIGHTS

• Print adex to remain subdued in the near term

• Group is set to organise more events in a bid to boost adex

• FY17 dividend is expected to fall below 18sen per share

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

Print adex to remain depressed in the near term. To recall, Star Media Group Bhd’s (Star) FY16 normalised earnings dropped by - 49.5%yoy to RM67.2m. This was mainly led by the underperformance from the ‘print and digital’ segment in view poor consumer and business sentiments. Nonetheless, we are comforted by the fact that ‘The Star’ manage to retain its dominance in the English vernacular newspaper segment (refer to chart 1). Moving forward, we expect the challenging business to persist in 2017 due to rising prices of goods and services which would trigger higher cost of living.

Event creation through partnership. Previously, Star collaborated with Eco World Development Group Berhad to launch the “#AnakAnakMalaysia” campaign. This had bode well for the group as the campaign has created additional demand for advertisement. In this regard, the management is looking at replicating the strategy by organising more events with other established corporations.

Impact on earnings. We are revising downwards FY17 and FY18 earnings by -12.6% and -12.5% respectively. This is to mainly take into account the poor consumer sentiment which is expected to cap the adex growth from the print segment. However, we are now expecting the radio segment to turn profitable subsequent to the disposal of the lossmaking Red FM and Capital FM as indicated in the 4Q16 quarterly earnings.

Dividend. Given the generous dividend declared of 18sen in FY16, we are revising upwards our FY17 dividend estimates to 16sen per share (previously 15sen per share), which translate to a total payout of RM118.1m. We do not expect the group to be able to declare dividends of 18sen in FY17 as its capability to generate cash is under pressure. To recall, the group’s cash reserve has fallen by -21.1%yoy to RM499.6m as at 4Q16 from RM632.9m a year ago due to lower net cash generation from operating activities.

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 is currently heavy reliant on the print segment. This is done by putting more emphasis and resources to further develop the exhibition and digital segments. However, we are concerned with the ability of these segments to mitigate for the ailing print segment. Despite limited share price appreciation in the near term, we are advising shareholders to remain invested in the stock for its attractive dividend yield of at least 6.0%. All factor considered, we are maintaining our NEUTRAL stance on Star.

Source: MIDF Research - 3 Mar 2017