We expect Star Publications (“STAR”) to report a
lower-thanexpected set of 1Q12 results (scheduled for release on 23 May) due to
the poor gross adex revenue experienced in the quarter. This is because there
was a marginal drop of 1.4% in the YTD March overall gross adex. However, we
expect the adex sentiment to improve from 2Q onwards due to some scheduled mega
sport events and a likely General Election. STAR’s recently launched ePaper
bundle package has received a 5.5% conversion rate during the first week of May
with a targeted rate of 30% by end July. We are keeping our FY12-FY14 earnings
forecasts unchanged at this juncture pending the upcoming 1Q12 result. We are
also maintaining our MARKET PERFORM call on STAR with an unchanged target price
of RM3.26, based on a targeted forward PER of 12.9x (-1SD below the mean).
Weak 1Q12 as a result
of poor adex revenue. We expect STAR’s 1Q12 turnover and net profit to come
in about 8% and 10% below our initial forecasts of RM262m and RM48m,
respectively, as a result of poor adex performance during the quarter. Our
FY12E net profit of RM187m is already 2.7% below the consensus estimate of
RM192m. No dividend is expected to be declared for the quarter. For the current
financial year, we expect STAR to declare a total gross dividend per share of
19.0 sen, which implied a 75% dividend payout ratio and a 5.8% dividend
yield.
The YTD newspaper
gross adex slipped 1.1% to RM974.2m according to Nielsen, hurt by the
negative growth in both the English (-7.1% YoY) and Chinese (-1.8% YoY)
segments but partially offset by higher contribution form the Malay (+5.9% YoY)
segment. For the English segment, Malay Mail gross adex experienced the biggest
slide of 27.8% YoY to RM5.1m, followed by STAR, which fell 8.6% to RM224.6m.
The drop in STAR’s 1Q12 gross adex in our view was mainly caused by its
deteriorating circulation number, thus prompted the company to launch its
e-Paper version in a hope to regain its circulation level.
Expecting adex to
gradually improve from 2Q onwards. Despite a marginal drop in the YTD March
gross adex to RM2.27b (-1.4% YoY), we, however, expect the adex to start
performing from 2Q onwards. For CY12, 2Q and 3Q will be the key boosters to the
overall adex given the mega sporting events in these periods (i.e. the Olympic
game from 27 July – 12 August & UEFA EURO from 8 June – 1 July) as well as
a potential General Election. We are maintaining our CY12 adex growth forecast
of 11.1% at RM11.9b, based on a 2.3x GDP multiplier (the average of the past
two General Election years).
Recorded 5.5%
conversion rate on the e-Paper bundle package during the first week of May.
STAR has launched an aggressive bundled package (e-Paper + printed version)
since early May with a reduced price of RM260/year in contrast to the
traditional RM460/year for the printed version only. The steep discount on the
subscription price has managed to attract 5.5k of its current subscribers to
convert to the e-paper bundled package during the first week of May. We
understand that management is targeting to convert 30k of its current 100k
printed version subscribers during the
three-month promotion period. While we believe the e-Paper edition is a right move to tackle the
younger group, especially the tech-savvy
readers, we, however, believe that it will hurt STAR’s circulation revenue
given that the new rate is a 43.5% discount from the old subscription fee.
Source: Kenanga
Source: Kenanga
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