INVESTMENT HIGHLIGHTS

• 1Q17 normalised earnings dropped by more than -60% to RM6.0m

• Print segment continues to performed poorly

• Weak cash generating capability impacted the cash reserve

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

Severely below expectations. Star Media Group Bhd (Star) posted 1Q17 earnings of RM6.6m. After adjusting for forex gain of RM0.6m, the normalised earnings amounted to RM6.0m. The -60.8%yoy decline in earnings was mainly attributable to the lower revenue from the print and radio segments. Moreover, the profit margin reduced to merely 3.3% from 7.7% as at 1Q16. All in, the results came in severely below ours and consensus expectations, accounting for 6.3% and 6.9% of full year FY17 earnings estimates respectively.

Cash reserve. During the quarter-in-review, the cash reserve reduced to RM456.4m (-9.5%yoy). We view that there could be slower cash collections from its debtors which has negatively impacted cash generated from operating activities.

Impact. We are keeping our earnings and dividends 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 view that the recent proposal to dispose the entire stake in Cityneon will severely derails the group’s future earnings recovery. Nonetheless, given the sizeable cash reserve, 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 - 24 May 2017