- We re-affirm our HOLD recommendation on Star Publications,
with a lower fair value of RM3.10/share vs. RM3.48/share previously, based on a
10% discount to our DCF – following the fine-tuning our earnings assumptions
after the release of its 3Q results.
- Star’s 9MFY12 net profit of RM111mil was below expectations,
accounting for only 60% and 62% of our and consensus estimates, respectively,
due to lower advertising revenue. Note that in August, newspaper adex fell by
1.9% YoY. English-language newspaper segment contracted by 7.3% YoY, while that
for Malay-language newspapers grew by 3.9% YoY.
- As such, we have trimmed our FY12F-FY15F net profits by
13%-20%, given the slower adex growth due to a cautious sentiment and rising competition
from Malay-language newspapers. We forecast a flat adex growth for FY12F and
marginal 1% rise for FY14F-FY15F. We have also incorporated the contributions
from the newly-acquired event business by I. Star Ideas Factory, with a PBT
assumption of RM5mil for FY12F and circa RM10mil-RM15mil for FY13F-FY14F. Our
revised net profit forecasts for FY12F-FY15F are below consensus by circa
16%-18%.
- Star’s 3QFY12 revenue fell 14%, driving net profit down by
23% QoQ to RM34mil, apart from higher operating expenses in promotions and discounts
to launch the e-bundle offering as well as marginally higher finance costs.
Print commanded 74% of revenue, falling by 2.7% QoQ because of lower adex. Only
the print and events segment contributed positively to the bottom line.
Stripping out PBT from Perfect Livin’ (recently-acquired event business),
Cityneon is still loss- making due to higher operating expenses.
- The impending General Election, which will act as a key
booster to adex, is unlikely to be held this year. As such, we believe
companies are likely to remain a bit cautious about ad spend. Nonetheless, we
expect ad spend to gain momentum as advertisers tend to exhaust their budget towards
the year-end, underpinned by the final stretch to bring in revenue. Therefore,
we expect 4Q to be seasonally stronger and robust.
- We still view Star’s earnings prospects as challenging
given the losses from the recently-acquired media assets in FY11 – Catcha
Media, Capital FM, Li-TV and Red Tomato. Earnings are expected to remain under pressure for at least three
years’ of gestation period.
- Despite higher operating expenses of circa RM6mil, as guided by management, arising from its
investments (four media assets, ePaper, iSnap and eFlavours), management is
confident of sustaining a DPS of 18.0 sen. This translates into an attractive
dividend yield of 6%, supported by a strong cash position of RM493 as at
end-3QFY12 – at parity to Media Chinese’s 6% (excluding special dividend) and
higher than Media Prima’s 4.5%.
- Underpinned by the challenging outlook and earnings
volatility for Star, we maintain our HOLD recommendation. Furthermore, the
group lacks near-term re-rating catalysts at this point. The stock is currently
trading at 14x FY12F PE – at near parity to its historical 3-year average PE of
15x.
Source: AmeSecurities
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