INVESTMENT HIGHLIGHTS

• Weak market condition to persist

• Star is actively growing Dimsum’s contents and reach

• Radio segment turns profitable subsequent to the disposal of Capital FM and Red FM

• FY17 dividend to be maintained at 18sen should the disposal of Cityneon come through.

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

Print and digital. To recall, the segment’s PBT decreased by - 70.2%yoy to RM8.1m. Apart from weak consumer sentiment, the advertising expenditure (adex) is also impacted by shorter duration inbetween Christmas and Chinese New Year (CNY). This was further impacted by low momentum post the latter festivity. In the immediate term, we are expecting the weak market condition to persist.

Dimsum. The group has been diligently growing its over-the-top streaming service. It continuously broadens the portfolio of its Asian content through collaboration with regional media conglomerates. To make its offerings more accessible, Star is looking at partnering mobile service providers and TV manufacturers.

Radio. The radio broadcasting segment recorded 1Q17 PBT of RM1.1m as compared to a LBT of RM0.4m a year ago. This was mainly attributable to the cost savings derived from the disposal of Capital FM and Red FM. Subsequent to the disposal, Star still owns two radio stations, namely Suria FM and 988 FM.

Impact. We are cutting FY17 and FY18 earnings estimates by -19.2% and -15.2% respectively as we are reducing the earnings contribution primarily from the print and digital segment. Note that we are still retaining the earnings contribution from Cityneon at this juncture pending the shareholders’ approval at the upcoming extraordinary general meeting.

Dividend. We are keeping our FY17 and FY18 dividend estimates at this juncture. However, should the disposal of Cityneon come through, we view that the group would be in a better financial position to maintain its annual dividend payment of 18sen per share.

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 more than 6.0%. All factor considered, we are maintain our NEUTRAL stance on Star.

Source: MIDF Research - 31 May 2017