A depressed 2QFY13 for Star reflects the dampening from its divisions that are turning around. The group registered RM251.3m in revenue (+13.9% q-o-q, -16.1% y-o-y) affecting net profit to follow its sentiment contributing RM28.5m (+9.4% q-o-q, -35.5% y-o-y). Post elections, advertisers remained cautious except in the TV space, reflecting growth in advertising revenue (adex) +16% q-o-q. An interim dividend of 6 sen was announced, matching historical payout and our dividend expectations. In light of vulnerable earnings, we concede that the group would maintain a 65% payout, translating to slightly lower yields of 5.4% (FY13F), but is on path to transform into a growth stock to reaffirm our Outperform recommendation.

Adex prospects. The Consumer Sentiment Index for this quarter declined to 109.7pts compared with 122.9pts in 2QFY13 according to the Malaysian Institute of Economic Research (MIER). Despite this finding, we do expect consumer sentiment to improve for 3QFY13, buoyed by festivities such as Hari Raya and Christmas and the wearing-off of the General Election related effect. Advertisers who have been cautious 1HFY13 would also need to exhaust their advertising budgets for the year hence further spending is expected.

Newspaper adex. A slight 1% growth in newspaper adex q-o-q signifies some gradual confidence in print advertising as we assume advertisers saw the overcrowding effect of political advertisement leading up to the elections in print publications taking away attention from their advertisements. This explains the sudden spike in TV advertising from April to May. We expect the landscape to normalise, with continuing opportunities for newspapers and other mediums.

Events (Revenue +107% q-o-q, -35.6% y-o-y). Dragged down by Cityneon from its lack of completed projects. The division‟s newly acquired Perfect Livin and Perfect Lifestyle businesses recorded RM12.7m (1HFY13) through engaging 6 exhibitions in 2QFY13 to offset major losses incurred by Cityneon. Cityneon is expected to breakeven by year end from a SGD93m sales order book, of which 70% is assumed to be realised by FY13F. Contributing 21% to FY13F revenue, the second largest revenue contributor to Star, we believe an improvement in its results would affect the group‟s full year results. Perfect Livin is estimated to exhibit 12 events in FY13F.

Remain positive. Star‟s outlook as we expected for FY13 may seem bleak as its divisions begin to turnaround, however we believe current pains at this infancy stage will prepare the group for more challenging times ahead. Our TP of RM3.49 is based on blended DCF and SOP valuations for FY14F, where we see the group‟s weaker arms to contribute more positively.

Source: PublicInvest Research - 15 Aug 2013