PETALING JAYA: The growth prospects for Star Media Group Bhd’s (Star) Singapore-listed subsidiary Cityneon Holdings Ltd and a new stream of recurring income from property rental that will start coming in from the financial year ending Dec 31, 2017 (FY17), has prompted CIMB Research to turn positive on Star’s stock.
CIMB has upgraded Star to “add” from “hold” previously with a higher sum-of-parts (SOP)-based target price of RM2.61.
The research house has raised FY16 to FY18 earnings per share by 4% to 8% to reflect higher earnings from Cityneon and property rental.
It has also switched its valuation methodology from price earnings multiple to SOP to better reflect the growth prospects of Cityneon and Star’s new property assets.
“We upgrade Star from ‘hold’ to ‘add’, with a higher SOP-based target price of RM2.61.
“Star also offers an attractive FY16 yield of 7.7%.
“Key risks to our ‘add’ call are weak earnings contribution from Cityneon and delay in the Pacific Star project completion,” CIMB said.
The research house said the stronger earnings from Cityneon and property assets would likely offset the softer print revenue due to a shift in consumer preference to the digital platform.
It added that management was optimistic on a stronger advertising expenditure recovery in second-quarter 2016 ahead of the Raya festivities and the EURO 2016 Football Championship.
“We expect stronger earnings contribution from Cityneon in 2016 onwards, after the acquisition of Victory Hill Exhibitions Pte Ltd (VHE) and the ‘Transformers’ brand licence.
“We see potential for Cityneon to capitalise on its business ties with Marvel and Hasbro and capture licensing rights for other franchises.
“We learned that VHE is in the midst of sourcing licensing rights for a third franchise that could be launched in 2018,” CIMB said.
It expects Cityneon’s net profit contribution to rise to 20% in FY18 from 5% in FY16.
VHE is on track to open four travelling and permanent Marvel and Transformer exhibitions globally this year.
CIMB foresees sustainable demand for these exhibitions, given that Marvel has a robust pipeline of new movies every year until 2020.
“We think that this would create demand for the immersive attractions.
“However, it is pivotal that the timing of each travelling set coincides with the release of each movie,” it added.
In addition, CIMB expects a stronger earnings growth for Star in FY17, driven by the new property rental income stream, following the completion of its Pacific Star office building in Section 13, Petaling Jaya, by year-end.
It said Star’s management was allocating 20% of the 230,000-square-feet office space to house its subsidiary companies, while the remaining space would be offered for rental.
The new property rental segment will generate recurring income for Star, CIMB said.
The research house estimates that Star could earn proceeds of about RM20mil from the disposal of its radio stations Red FM and Capital FM, based on Media Prima Bhd’s acquisition of Ultra FM and Pi Mai FM in October 2015.
“We understand that both stations are operating in auto-play mode without DJs.
“Management has highlighted that Star would benefit from an annual cost savings of RM5mil-RM6mil if it sells off these radio stations.
The radio segment incurred an RM1mil loss before tax in FY15,” it said.