This article first appeared in The Edge Financial Daily, on November 26, 2015.

Star Media Group Bhd
(Nov 25, RM2.34)
Maintain outperform call with an unchanged target price of RM2.78: We attended Star’s third quarter ended Sept 30, 2015 (3QFY15) results briefing, helmed by Datuk Seri Wong Chun Wai (group managing director-cum-chief executive officer) and Ragesh Rajendran (group chief financial officer). 

The overall media industry was dampened by the soft consumer sentiment arising from economic uncertainties and the ringgit depreciation. 

Management expects conditions in the industry to remain challenging until next year. 

Higher contribution from its event, exhibition, interior and thematic (EEIT) segment will mitigate the lower revenue from traditional media platforms. 

Its 65%-owned Cityneon Holdings Ltd is expected to turn around in 4QFY15, with higher earnings contribution in FY16. 

Despite the challenges affecting the media industry as a whole, we believe the group would be able to sustain its performance due to its entrenched position in the English daily segment besides higher EEIT contribution. 

We continue to like Star for its strong net cash position and high dividend yield. Our outperform call is reaffirmed with an unchanged TP of RM2.78.

The rights issue and acquisition exercise of Victory Hill Exhibitions, which holds the exhibition rights for Marvel’s characters, was completed on Sept 30. 

The company recently secured another exhibition rights with Hasbro Inc and Hasbro International Inc for the Transformers brand. 

After two successful Marvel exhibitions in Seoul and New York, the company is currently in the midst of setting up an exhibition in Las Vegas for Marvel and Transformers. 

Unlike the two previous short-term exhibitions of about three to four months, the company is planning to have a longer exhibition in Vegas. 

There will be Marvel and Transformers exhibitions at other venues throughout next year, but management is unable to disclose more information at this juncture. 

The company would normally approach a venue owner for the exhibition or vice-versa. 

Cityneon will receive an upfront payment from the venue owner which is normally sufficient to cover the cost of exhibits. 

Revenue from entrance fees will then be shared between Cityneon and the venue owner. 

Cityneon also owns the rights to manufacture and sell merchandise based on the exhibits. The company is always looking for new potential tie-ups with popular brands to add to its portfolio. 

We expect the group to maintain 18 sen dividend payment for this year, translating into an attractive dividend yield of 7.6%, premised on its strong cash-generating capability. 

Based on our analysis, the group would still be able to pay 18 sen dividend from its annual cash flow if the group’s print advertising expenditure (adex) drops by up to 5%. 

However, in order to maintain dividend payout from free operating cash flow, we estimate dividend payment will be reduced to 15 sen if the group’s print adex drops to 10%. 

At 15 sen per share, the stock still offers a decent yield of 6.4%. — PublicInvest Research, Nov 25