STAR (6084) : Star Publications - Not so shiny
Target RM2.30 (Stock Rating: HOLD)
Star’s 9M14 core net profit came in below expectations at 70% and 68% of our and consensus full-year estimates due to continuing weakness in the print and digital segment’s contribution which fell by 5.7% yoy. Core net profit in 3Q14 fell by 22.1% yoy due to lower print adex following the softening in consumer spending. Given the weaker earnings performance, we cut our FY14-16 EPS by 2-11% and maintain a Hold rating on the stock, with a lower target price of RM2.30, based on 12.2x CY16 P/E, a 25% discount to our target market P/E of 16.3x (15% prev.) as we expect the structural shift in adex from a traditional to digital platform to gain momentum, coupled with weaker consumer sentiment. Switch to Astro for better exposure to the domestic media sector.
Protracted weakness in the print segment
9M14 revenue from the print and digital segment, which contributed about 72% to the group’s revenue, fell by 5.7% yoy due to weaker adex following the tragic MH370 and MH17 incidents, fuel price increases and interest rate hikes which caused advertisers to hold back spending. Moreover, the pending implementation of the Goods and Service Tax (GST) in 2015 is still dampening the already weakened consumer sentiment. We expect the weakness to continue until 1H15. There were no dividend declared in the quarter, which is in line with our expectation as we expect another 9 sen dividend in 4Q14.
In need of a new growth driver
Star’s non-print segment is gaining better traction. The event and exhibition segment’s revenue grew by 21.4% yoy to RM153.5m in 9M14 (vs. RM126.4m in 9M13), while its operating profit grew from RM3.7m to RM10.9m on the back of higher project completion by Cityneon and Perfect Livin’. The company plans to reduce its dependency on the print segment by growing its event and TV segments, which are showing positive signs of improvement. However, we think Star needs to get a stronger digital asset through M&A activities in order to stay relevant given the inevitable shift in adex towards a digital platform.
We maintain Hold
The stock trades at 12x CY14 P/E, about 1 s.d. below its mean with an attractive FY14-15 yield of 7.8%. The company’s financial position remains strong with a net cash position of RM354m. Therefore, we think that Star could afford to increase its payout ratio to reward its shareholders.
Source: CIMB Daybreak - 20 November 2014
Target RM2.30 (Stock Rating: HOLD)
Star’s 9M14 core net profit came in below expectations at 70% and 68% of our and consensus full-year estimates due to continuing weakness in the print and digital segment’s contribution which fell by 5.7% yoy. Core net profit in 3Q14 fell by 22.1% yoy due to lower print adex following the softening in consumer spending. Given the weaker earnings performance, we cut our FY14-16 EPS by 2-11% and maintain a Hold rating on the stock, with a lower target price of RM2.30, based on 12.2x CY16 P/E, a 25% discount to our target market P/E of 16.3x (15% prev.) as we expect the structural shift in adex from a traditional to digital platform to gain momentum, coupled with weaker consumer sentiment. Switch to Astro for better exposure to the domestic media sector.
Protracted weakness in the print segment
9M14 revenue from the print and digital segment, which contributed about 72% to the group’s revenue, fell by 5.7% yoy due to weaker adex following the tragic MH370 and MH17 incidents, fuel price increases and interest rate hikes which caused advertisers to hold back spending. Moreover, the pending implementation of the Goods and Service Tax (GST) in 2015 is still dampening the already weakened consumer sentiment. We expect the weakness to continue until 1H15. There were no dividend declared in the quarter, which is in line with our expectation as we expect another 9 sen dividend in 4Q14.
In need of a new growth driver
Star’s non-print segment is gaining better traction. The event and exhibition segment’s revenue grew by 21.4% yoy to RM153.5m in 9M14 (vs. RM126.4m in 9M13), while its operating profit grew from RM3.7m to RM10.9m on the back of higher project completion by Cityneon and Perfect Livin’. The company plans to reduce its dependency on the print segment by growing its event and TV segments, which are showing positive signs of improvement. However, we think Star needs to get a stronger digital asset through M&A activities in order to stay relevant given the inevitable shift in adex towards a digital platform.
We maintain Hold
The stock trades at 12x CY14 P/E, about 1 s.d. below its mean with an attractive FY14-15 yield of 7.8%. The company’s financial position remains strong with a net cash position of RM354m. Therefore, we think that Star could afford to increase its payout ratio to reward its shareholders.
Source: CIMB Daybreak - 20 November 2014
