Period  3Q14/9M14

Actual vs. Expectations STAR’s 9M14 NP of RM89.9m (-9% YoY) came in within our expectation but below the consensus, accounting for 76.8% of our, and 63.3% of the street’s, full-year estimate.

Dividends  No dividend was declared during the quarter, as expected. For the coming 4Q14, we expect STAR to declare 6.0 sen DPS, bringing its FY14 total DPS to 15.0 sen.

Key Results Highlights YoY, 9M14 revenue declined marginally by 0.4% to RM732.8m as the higher event division’s contribution (+21% to RM154m) was offset by the lower print segment contribution (-5.7% to RM526m). PBT, however, declined by 8% due to higher operating expenses mainly related to a Voluntary Separation Scheme (VSS) amounting to RM11.5m recorded in 2Q14. Stripping-off the VSS cost, 9M14 PBT would remain relatively flat at RM132m with a margin of 18.1% vs. 17.9% a year ago.

 Print and New Media segmental 3Q14 revenue declined by 6.4% YoY to RM247m due mainly to the lower print segment contribution (-10.9% to RM170m) mainly attributed to the MH17 incident and the low-profile / cancellation of Hari Raya open houses and National Day celebrations. The division’s PBT, meanwhile, also declined by 17.3% to RM44m while its margin narrowed to 26.1% (vs. 28.2% a year ago). Broadcasting segment, meanwhile, saw its revenue shrinking 6% YoY to RM13m and continued to suffer losses. Event division’s revenue was higher by 8.6% YoY to RM59m on additional projects completed by Cityneon and additional exhibition show held by Perfect Livin’. Television division’s revenue declined marginally to RM2.5m (-0.4% YoY) and suffered a LBT of RM1.8m due to higher programme and marketing expenses.

 QoQ, 3Q14 turnover dipped 10% due to MH17 tragedy, fuel price increase and interest rate hike which affected consumer sentiments. Its PBT was also lower by 12% in tandem with the lower revenue.

Outlook  Our pessimistic view on the industry adex outlook remains unchanged in view of: (i) the recent petrol price hike, (ii) persistently high inflation rate, and (iii) on-going subsidy rationalisation plans, which could continue dampening the already weak ad spend.

 Its event division contribution, meanwhile, remains a wildcard to the group’s earnings.

Change to Forecasts We have raised our FY14E NP forecast marginally by 0.9% after fine-tuning. Our FY15E NP, however, is lowered by 3.4% to RM145m after revising downwards the event revenue assumption to RM215m (vs. RM285m previously) as we believe we were too aggressive previously.

Rating Maintain UNDERPERFORM where we believe the company as well as the sector will still be negatively affected by the gloomy adex outlook moving forward. Valuation  Lowered TP to RM2.29 (from RM2.44 previously) based on a targeted FY15 PER of 11.7x (vs. 11.9x previously), representing -2.0x SD below its mean.

Risk to Our Call Improvement in adex sentiment.

Source: Kenanga