HE BUZZ
Star announced that its wholly-owned subsidiary, I.Star Ideas Factory SB, has acquired CNM Events Marketing SB, a company that deals with events related to home and lifestyle exhibitions and owns the established “Perfect Livin” and “Perfect Lifestyle” brands, for a sum of RM45m, to be satisfied in cash via two tranches.
OUR TAKE
RM30m profit guaranteed over 3 years. The acquisition was a positive surprise as it comes with a profit guarantee of RM30m over a 36-month period - commencing from the conclusion of the exercise - from the previous shareholders Dato‟ Adrina Law Song Ting and Dato‟ Yam Fook Poh. This values the acquisition at a 4.5x forward PER, which we deem cheap.
CNM in a snap. CNM, incorporated on 19 July 2007, is involved in the business of managing, promoting and organising of all kinds of events, typically related to home and lifestyle exhibitions. The company‟s most established event is the Perfect Livin exhibition, the first of which was held in 2008. In 2011, the exhibition successfully achieved a record 108,000 visitors for its April showcase and 123,000 visitors for its August showcase. It has projected a combined total of 800k visitors for its various exhibitions this year, including Perfect Livin. With plans to organize more exhibitions, the company aims to boost the number visitors to its events to 1m next year.
A cash deal. The purchase consideration will be satisfied by cash, with the first payment of RM28.8m to be handed over on the completion date. The balance of RM16.2m is payable over three years, supported by the profit guarantee from CNM and Dato‟ Law. As at 31 Mar 2012, Star held a hefty RM513.4m in net cash. After deducting this acquisition, Star‟s net cash per share will total RM0.63. With its strong balance sheet, we do not think that the cash acquisition will affect our dividend forecast of RM0.20 per share, which is based on 75% payout ratio. This will translate into a lucrative dividend yield of 6.2%.
Maintain NEUTRAL. With this acquisition, we believe Star would be able to strengthen its position as a complete media group. The group‟s current portfolio of events includes the notable „CHEER‟ cheerleading competition, The Star Education Fair and The Star Property Fair. We believe the coming on board of Perfect Livin will enable the media group to increase its visibility to the masses. Star‟s existing events business recorded revenue of RM183m in FY11, representing only 17% of group revenue and making a minimal impact on group earnings. With a profit guarantee of RM10m p.a, we raise our earnings projection by 4% for FY12 and 3.8% for FY13. As such, our FV is bumped up to RM3.46, from RM3.33 previously, based on unchanged 13x FY12 PER. Even so, we are maintaining our NEUTRAL call for now due to the limited price upside.
Source: OSK
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