Star Media Group : Negative surprise as things go south in Cityneon BUY

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Star Media Group : Negative surprise as things go south in Cityneon        BUY

We maintain BUY on Star Media Group Bhd (Star) with an unchanged fair value of RM2.88/share based on an SOP valuation as our FY17F-FY18F earnings remain unchanged. However, we have lowered Star’s FY16F earnings by 36% on lowered assumptions for Cityneon as 9MFY16 core net profit came in markedly below expectations at RM50mil (-41% YoY), which accounted for only 48% of both consensus and our full-year estimates. The negative surprise can be mainly attributed to the underperformance in the event/exhibition segment, which registered a loss before tax of RM2mil in 3Q16 vs. a profit before tax of RM20mil the previous quarter. Management guided that the disappointment was due to fewer projects during 3QFY16. However, we note that the event/exhibition segment has yet to capture the full potential of its new intellectual property rights division as management had only launched one travelling exhibit in Paris and one permanent exhibit in Las Vegas by 3QFY16. Moving forward, we expect Cityneon to add at least another four sets of exhibits by FY18. Hence, we believe the underperformance is temporary, and we should see Cityneon starting to bear fruit from its exhibitions in Singapore and Las Vegas going into 4Q16.

On the flip side, Star's 9MFY16 group revenue came in within expectation at RM672mil (-9% YoY), accounting for 70% of our full-year forecast. In print, 3QFY16 revenue registered a YoY contraction of 13% due to lower adex revenue (-15% YoY). The decline is line with our forecast. In addition, the radio division saw a faster-than-expected decline of 23% in revenue and registered a loss of RM1.3mil amid softer consumer and business sentiments. On a brighter note, we understand that print adex as reported by Nielsen increased 6% YoY during the 2013 general election, compared to a 1.2% decline in 2012. Therefore, we expect increased campaign expenditures to reinvigorate Star's adex revenue if the rumoured 2017 general election were to take place. All in, we believe Star is still attractive with a dividend yield of 7.4%. Star currently trades at FY17F PE of 15.7x, +1sd above its 5-year average.

Others :

WCT Holdings  : New Jobs Yet To Contribute Significantly In 9MFY16         HOLD

Malakoff Corporation : 3Q16 - Not all bad             HOLD

MSM Malaysia : In the red in 3QFY16, excluding trading gains      SELL

AMMB Holdings : 1HFY17 earnings kept pace with expectations NON-RATED

ECONOMIC HIGHLIGHTS

Thailand : Expecting brighter outlook in 2017

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