INVESTMENT HIGHLIGHTS

• 4Q17 normalised earnings, excluding profit contribution from Cityneon, improved by +100.7%qoq to RM32.2m

• FY17 financial performance came in-line with ours and consensus expectations

• Group’s dividend commitment remains intact, underpinned by sizeable cash reserve

• Maintain BUY with unchanged target price of RM1.80 Sequential quarterly improvement.

Star Media Group Bhd’s (Star) 4Q17 normalised earnings, excluding the profit contribution from Cityneon, came in at RM32.2m. This represents an increase of +100.7%qoq as compared to RM16.0m achieved in 3Q17. Note that the exceptional items mainly consist of: i) impairment on goodwill (RM33.6m), ii) impairment on property, plant and equipment (RM69.3), iii) property, plant and equipment written off (RM17.9nm) and; iv) mutual separation scheme / early retirement option expenses (RM56.4m). We opine that the improvement in earnings was mainly attributable to effective cost management initiatives.

FY17 financial performance well within expectations. Cumulatively, the group’s FY17 normalised earnings, excluding the discontinue operation, amounted to RM36.1m. All in, the group’s full year FY17 financial performance came in within ours and consensus expectations, accounting for 96.6% and 97.9% of FY17 full year earnings estimates respectively.

Impact. No change to our earnings estimates at this juncture.

Cash reserve remains sizeable. Star’s cash reserve stands at RM480.3m. This represents a slight decrease of - 4.0%yoy (4Q16: RM499.6m) subsequent to the distribution of dividend to shareholder. This reinforced our view that the group’s dividend yield would remain attractive at approximately 8%. Note that we maintain our conservative dividend assumption as the bulk of the group’s cash reserve has been allocated to acquire new earnings accretive business.

Maintain BUY. Despite the tough market condition and disposal of Cityneon, the group managed to show improvement in its 4Q17 results. This is in light of the group’s effective cost management initiatives. We expect further cost optimisation in FY18 to support the group’s bottomline in the near term. Coupled with sizeable cash reserve, we view that the group would still be able to provide an attractive dividend yield of 8%. Note that we have imputed a conservative dividend payment to cater for the group’s investment opportunities to grow its earnings base. All factors considered, we are maintaining our BUY recommendation with unchanged target price of RM1.80 per share based on dividend discount model (DDM) valuation methodology (discount rate of 6.1%).

Source: MIDF Research - 28 Feb 2018