PUBLIC INVESTMENT BANK

PublicInvest Research Company Update Tuesday, September 13, 2016 KDN PP17686/03/2013(032117) STAR MEDIA GROUP BERHAD Neutral

DESCRIPTION Disposing Capital FM and Red FM

Malaysia’s largest English print publication, evolving to Star’s two radio stations, namely Capital FM and Red FM have been on auto- become an integrated media powerhouse. play mode since the end of last year while waiting for management’s next course of action, amongst which were a revamp, restructure or outright disposal. As we

12-Month Target Price RM2.72 had earlier anticipated a probable disposal of the two non-profitable radio Current Price RM2.57 stations, Star announced last Friday that it had entered into conditional sale and Expected Return 5.8% purchase of shares agreement (SPA) with Astro’s wholly-owned subsidiary,

Measat Broadcast Network Systems Sdn Bhd for the disposal of Capital FM Sdn Market Main Bhd (CFSB), which operates Capital FM and Red FM for RM42m cash. We are Sector Media positive on the disposal as it would enable the Group to focus on its profitable Bursa Code 6084 business segments with an additional c. RM5m kicker from annual cost savings Bloomberg Ticker STAR MK Shariah-compliant Yes if both stations are divested, which management had earlier guided. The cash proceeds from the disposal will be utilised for working capital purposes. We maintain our earnings estimates and maintain our Hold call with an unchanged SHARE PRICE CHART DCF-derived TP of RM2.72. Despite the challenging business landscape, we 2.80 continue to like Star based on its strong cash-pile and high dividend yield. 2.70 2.60 § Background of Capital FM Sdn Bhd (CFSB). CFSB which operates Capital FM and Red FM has a paid up capital of RM5m. Capital FM was 2.50 acquired for RM16.5m (80% interest for RM15m in 2011 and balance of 2.40 20% stake for RM1.5m in 2015). Star acquired Radio Sdn Bhd 2.30 which holds broadcasting licenses for Red FM and 988 FM in June 2003 for 2.20 RM23.6m. With the disposal of Capital FM and Red FM, Star is now left with 2.10 two radio stations, i.e. 988 FM (Chinese) and FM (Malay). 988 FM has Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 been registering profits, while Suria FM is gaining traction and expected to breakeven in the near term, probably in 2017. 52 Week Range (RM) 2.27-2.70 3-Month Average Vol (‘000) 288.5 § Disposal of Red FM and Capital FM. The price tag for the disposal of two

SHARE PRICE PERFORMANCE broadcasting stations is RM42m, subject to adjustments after taking into consideration the amount of the net working capital of CFSB as at the 1M 3M 6M Conditions Fulfilment Date (Adjusted Price). Nevertheless, the adjusted Absolute Returns -0.4 2.4 8.9 price is not expected to vary significantly. The completion of the disposal is Relative Returns -0.1 0.0 5.5 subject to relevant regulatory approvals and the fulfilment of the conditions

precedent detailed in the SPA.

KEY STOCK DATA § Rationale for the disposal. The disposal would enable the Group to focus

on its businesses which are profitable. In addition, management had earlier Market Capitalisation (RM m) 1,896.5 guided that disposal of the two loss-making radio stations would generate No. of Shares (m) 738.0 cost savings of approximately RM5m per annum. As at 1HFY16, Star’s broadcasting business segment recorded a drop of 13.3% in its revenue,

MAJOR SHAREHOLDERS from RM24.1 in 1HFY15 to RM20.9 in 1HFY16. The segment recorded loss before tax of RM2.3m in 1HFY16, compared to a profit before tax of % RM0.2m in 1HFY15. Malaysian Chinese Association 42.5 Skim Amanah Saham Bumiputera 9.9 § Utilisation of proceeds. The cash proceeds from the disposal amounting EPF 6.0 RM42m would raise the Group’s cash position by about 7% based on the

Group’s cash balances of RM541m as at 30 June 2016. Nevertheless, one- off gain from the disposal could not be quantified at this juncture as Red FM was acquired together with 988 FM for RM23.6m in 2003.The cash proceeds shall be utilised mainly for working capital purposes.

KEY FORECAST TABLE FYE Dec (RM m) 2014A 2015A 2016F 2017F 2018F CAGR Revenue 1,013.7 1,019.0 1,008.2 1,062.4 1,124.4 2.6% Pre-tax Profit 153.4 170.1 146.1 142.4 162.8 1.5% Net Profit 111.4 133.0 113.6 111.1 126.9 3.3% Core Net Profit 148.9 133.0 92.5 111.1 126.9 -3.9% Syarifah Hidayatul Akmal EPS (Sen) 15.1 18.0 15.4 15.0 17.2 3.3% T 603 2268 3000 P/E (x) 17.0 14.3 16.7 17.1 14.9 F 603 2268 3014 DPS (Sen) 18.0 18.0 18.0 18.0 18.0 E [email protected] Dividend Yield (%) 7.0 7.0 7.0 7.0 7.0 Source: Company, PublicInvest Research estimates

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PUBLIC INVESTMENT BANK BERHAD

KEY FINANCIAL DATA

INCOME STATEMENT DATA FYE Dec (RM m) 2014A 2015A 2016F 2017F 2018F Revenue 1,013.7 1,019.0 1,008.2 1,062.4 1,124.4 Operating Income 130.4 137.1 97.0 115.4 137.9 Pre-tax Profit 153.4 170.1 146.1 142.4 162.8 Income Tax -41.4 -39.5 -35.1 -34.2 -39.1 Effective Tax Rate (%) 27.0 23.2 24.0 24.0 24.0 Minorities -0.6 2.3 2.6 2.8 3.1 Net Profit 111.4 133.0 113.6 111.1 126.9 Core Net Profit 148.9 133.0 92.5 111.1 126.9

Growth

Revenue -1% 1% -1% 5% 6% Pre-tax Profit -20% 11% -14% -3% 14% Net Profit -22% 19% -15% -2% 14% Core Net Profit 4% -11% -30% 20% 14% Source: Company, PublicInvest Research estimates

BALANCE SHEET DATA FYE Dec (RM m) 2014A 2015A 2016F 2017F 2018F Property, Plant & Equipment 476.6 500.4 556.8 610.9 662.3 Cash and Cash Equivalents 621.4 632.9 393.2 323.8 172.7 Receivables, deposits and prepayment 175.7 243.1 241.8 254.8 269.7 Other Assets 396.6 345.7 339.9 331.6 323.7 Total Assets 1,670.3 1,722.1 1,531.7 1,521.1 1,428.4

Payables 154.4 180.1 179.2 188.8 199.8 Borrowings 269.3 272.9 103.0 101.6 0.5 Deferred tax 62.4 54.5 54.2 57.1 60.4 Other Liabilities 41.6 69.3 69.3 69.3 69.3

Total Liabilities 527.8 576.8 405.7 416.8 330.1

Shareholders’ Equity 1,142.5 1,145.3 1,126.0 1,104.3 1,098.3

Total Equity and Liabilities 1,670.3 1,722.1 1,531.7 1,521.1 1,428.4 Source: Company, PublicInvest Research estimates

PER SHARE DATA & RATIOS FYE Dec 2014A 2015A 2016F 2017F 2018F Book Value Per Share 1.6 1.6 1.5 1.5 1.5 NTA Per Share 1.4 1.4 1.4 1.3 1.4 EPS (Sen) 15.1 18.0 15.4 15.0 17.2 DPS (Sen) 18.0 18.0 18.0 18.0 18.0 Payout Ratio (%) 119.2 99.9 116.9 119.6 104.7 ROA (%) 8.6 6.5 7.4 7.3 8.9 ROE (%) 12.5 9.7 10.1 10.1 11.6 Source: Company, PublicInvest Research estimates

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PUBLIC INVESTMENT BANK BERHAD

RATING CLASSIFICATION

STOCKS

OUTPERFORM The stock return is expected to exceed a relevant benchmark’s total of 10% or higher over the next 12months.

NEUTRAL The stock return is expected to be within +/- 10% of a relevant benchmark’s return over the next 12 months.

UNDERPERFORM The stock return is expected to be below a relevant benchmark’s return by -10% over the next 12 months.

TRADING BUY The stock return is expected to exceed a relevant benchmark’s return by 5% or higher over the next 3 months but the underlying fundamentals are not strong enough to warrant an Outperform call.

TRADING SELL The stock return is expected to be below a relevant benchmark’s return by -5% or more over the next 3 months.

NOT RATED The stock is not within regular research coverage.

SECTOR

OVERWEIGHT The sector is expected to outperform a relevant benchmark over the next 12 months.

NEUTRAL The sector is expected to perform in line with a relevant benchmark over the next 12 months.

UNDERWEIGHT The sector is expected to underperform a relevant benchmark over the next 12 months.

DISCLAIMER

This document has been prepared solely for information and private circulation only. It is for distribution under such circumstances as may be permitted by applicable law. The information contained herein is prepared from data and sources believed to be reliable at the time of issue of this document. The views/opinions expressed herein are subject to change without notice and solely reflects the personal views of the analyst(s) acting in his/her capacity as employee of Public Investment Bank Berhad (“PIVB”). PIVB does not make any guarantee, representations or warranty neither expressed or implied nor accepts any responsibility or liability as to its fairness liability adequacy, completeness or correctness of any such information and opinion contained herein. No reliance upon such statement or usage by the addressee/anyone shall give rise to any claim/liability for loss of damage against PIVB, Public Bank Berhad, its affiliates and related companies, directors, officers, connected persons/employees, associates or agents.

This document is not and should not be construed or considered as an offer, recommendation, invitation or a solicitation of an offer to purchase or subscribe or sell any securities, related investments or financial instruments. Any recommendation in this document does not have regards to the specific investment objectives, financial situation, risk profile and particular needs of any specific persons who receive it. We encourage the addressee of this document to independently evaluate the merits of the information contained herein, consider their own investment objectives, financial situation, particular needs, risks and legal profiles, seek the advice of their, amongst others, tax, accounting, legal, business professionals and financial advisers before participating in any transaction in respect of any of the securities of the company(ies) covered in this document.

PIVB, Public Bank Berhad, our affiliates and related companies, directors, officers, connected persons/employees, associates or agents may own or have positions in the securities of the company(ies) covered in this document or any securities related thereto and may from time to time add or dispose of, or may be materially interested in, any such securities. Further PIVB, Public Bank Berhad, our affiliates and related companies, associates or agents do and/or seek to do business with the company(ies) covered in this document and may from time to time act as market maker or have assumed an underwriting commitment in the securities of such company(ies), may sell them or buy them from customers on a principal basis, may have or intend to accommodate credit facilities or other banking services and may also perform or seek to perform investment banking, advisory or underwriting services for or relating to such company(ies) as well as solicit such investment advisory or other services from any entity mentioned in this document. The analyst(s) and associate analyst(s) principally responsible for the preparation of this document may participate in the solicitation of businesses described aforesaid and would receive compensation based upon various factors, including the quality of research, investor client feedback, stock pickings and performance of his/her recommendation and competitive factors. Hence, the addressee or any persons reviewing this document should be aware of the foregoing, amongst others, may give rise to real or potential conflicts of interest.

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