INVESTMENT HIGHLIGHTS

• 2Q17 normalised earnings fall by more than -60%yoy to 8RM.4m due to lower profit from print and digital segment

• A total of 36sen dividend declared in 2Q17

• Potentially loss-making 2H17

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

Another quarter of disappointment. Star Media Group Bhd (Star) 2Q17 normalised PATAMI came in at RM8.4m (-63.5%yoy). This was mainly attributable to the lower profit form the print and digital segment. The radio segment returns to the black subsequent to the streamlining exercise. On another note, Star would have reported a loss should we exclude Cityneon’s earnings contribution.

Earnings falling behind expectations. Cumulatively, Star’s 1H17 normalised earnings amounted to RM14.4m, a reduction of -62.4%yoy. This came in severely below ours and consensus expectations, accounting for merely 21.3% and 21.1% of full year FY17 earnings estimates respectively.

Cash reserve. The group’s cash reserve reduced further to RM326.7m from RM499.6m as at 4Q16. This was mainly attributable to lower cash generated from operations. Nonetheless, the group remains active in acquiring more property, plant and equipment as well as television programme rights.

Dividend. The group announced first interim dividend of 6sen per share and special dividend of 30sen per share which has surpassed our full year FY17 expectations. We view that the special dividend is reflective of the RM214.1m (29sen per share) gain that arises from the disposal of Cityneon.

Impact. We are keeping both FY17 and FY18 earnings and dividend estimates unchanged at this juncture pending further details and guidance from the upcoming analyst briefings. That being said, there is a likelihood that FY17 and FY18 earnings estimates will be reduced significantly to the range of between RM10m to RM30m should there be no positive turnaround plan in the near-term.

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. Subsequent to the disposal of Cityneon, we do not expect any financially significant turnaround in the near-term. This is evident in the group’s latest quarterly results announcement. Though the group has embarked on its next digital transformation plan via the introduction of dimsum.my, we view that the initiative may not be fruitful anytime soon. Nonetheless, we are pleasantly surprise by the announcement of 30sen special dividend which would augur well for Star’s existing shareholders. As such, we would advice investors to maintain their respective shareholding in the group until the disbursement of the said dividend. We remain concerned on the future outlook of the group should there be no earnings accretive acquisition(s) in the pipeline. All factors considered, we are maintaining our NEUTRAL stance on Star.

Source: MIDF Research - 22 Aug 2017