Star Publications - Adex growth remains muted despite ad rates hike HOLD

- We maintained our HOLD recommendation on Star Publication (Malaysia) Berhad and trimmed our fair value to RM3.58/share, based on a 10% discount to our DCFvalue of RM3.98/share (implied PE of 15x).

- We trimmed our earnings estimate by 3% respectively for FY12F and FY13F as we tone down our adex assumption. We introduce our new earnings estimate of RM193mil and RM199mil for FY12F and FY13F, respectively, with a growing CAGR over of 9% in FY12F. 

- Industry overall adex is expected to grow high single digit by 8-9% (2011: 9%) due to potential election taking place globally. Other regional events such as European Cup and Olympics would support adex spending with stronger impact on the TV segment.

- Despite strong industry adex growth, management expects Star’s growth to remain flat at 2.5% due to continued market share loss to online advertisers.  

- Meanwhile, 3% increase of ad rates on the front half of “The Star” will offset the additional discount offered for other sections, giving rise to a balanced advertising mix. Firmer booking trends would be back on track from 2QFY12F onwards as most companies would have their annual marketing plans in full gear. 

- Star would be accelerating capex of RM40mil this year (normally: RM10-30mil) as it seeks to improve on operations acquired in FY11 by upgrading printing press and system that are getting obsolete. Star has no intention of pursuing any M&A activities for the time being.

- With current newsprint price of USD623/MT, management expects newsprint price to rise as a result of increasing demand in 2HFY12F. At present, Star holds about one year inventory of newsprint. 

- Star has no official dividend policy. Nevertheless, it has consistently paid out 60% of earnings from FY09-FY11, translating to an estimated DPS of 18 sen respectively for FY12F and FY13F. It has a strong balance sheet with estimated net cash of RM252mil in FY12F. 

- Contributions from its new acquisitions remains muted for now. Investments so far have yet to contribute meaningfully to the bottom line. Capital FM is expected to post small losses and Li-TV to break even this year.

- At forward PE of 13x in FY12F, Star is fairly priced in view of its adex growth of 2.5% as a result of adex market share loss to online advertisers and the laggard of capital deployment dilemma. Hence, we re-iterate our HOLD rating with a decent dividend yield of 5.4%.

Source: AmeSecurities