Star Publications - Moving into digital platform HOLD

-  We maintain our HOLD rating on Star Publications, with an unchanged fair value of RM3.58/share, based on a 10% discount to our DCF value of RM3.98/share.

-  Despite a weak 1Q, management expects earnings ahead to be boosted by contributions from Euro 2012, the Olympics and possible general election. Star expects to achieve a high single- to low double-digit adex growth. We have incorporating our latest newsprint assumption at US$700/MT into our forecasts.

-  Star’s recent new product roll-out – ePaper and iSnap – has enabled it to gain a deeper penetration into the digital platform. 

-  The ePaper bundle promotion (RM260) has been well received thus far, since its launch in April with 13k subscribers. This would boost Star’s circulation and in turn, help push ad rates further moving forward. Star has partnered with Samsung, for which 25k-equivalent ePaper is pre-installed into the latter’s devices. 

-  We are uncertain at this juncture as to how greatly ePaper would impact circulation once the bundle promotion is over. We believe it would take a while for  ePaper to contribute significantly to the bottom line. 

-  iSnap, a reality feature built into “The Star mobile app,” is available to advertisers at an extra cost. Advertisers that wish to provide more depth and expand beyond what is seen on print may view iSnap as another path to create brand awareness and reach out to customers.

-  We reckon that iSnap could potentially be a new stream of revenue for Star, if this takes off successfully, as digital advertising is gradually gaining prominence.

-  Moving forward, Star intends to favourably position itself in digital advertising. Joors (15%-owned), from Sweden, provides free high speed mobile internet service which requires a one-time egistration fee. It offers ad-supported mobile broadband services. Discussions are ongoing with local telecommunication companies to bring Joors into Malaysia.

-  Management is confident that Cityneon would turn profitable this year, despite its high fixed cost. Furthermore, Cityneon has been invited to submit a bid to build and design Disneyland in China. We

understand that Star is also actively looking at acquiring an event company. 

-  Star is currently undergoing a transitory period, moving towards becoming a full-fledged multi-media company in the next 2-3 years. Nonetheless, Star’s main focus will still be on print.

-  While Star offers a dividend yield of 5.8%, we believe it lacks growth in the short- to middle-term pursuant to capital deployment, as contributions following its acquisition of four media assets last year remain muted. At the current level, Star is trading at 12x forward PE (vs. MCIL 10x).  

Source: AmeSecurities