- We are upgrading Star Publication to a BUY, with an
unchanged fair value of RM3.10/share, based on our DCF valuation. Our fair value
implies a potential return of 30% (including a 7% dividend yield) with a
forward PE of 12x FY13F.
- The share price has retraced by a significant 35% and underperformed
KLCI by 27%, since our downgrade on 8 July 2011. This was underpinned by a
growing earnings risk profile of long gestation period given the acquisition of
media assets in FY11.
- Its FY12 results will be released on 26 February 2012. We
expect weak results due to:- (1) Weaker print advertising revenue due to a
shift from coloured to black and white advertising by hypermarkets coupled with
additional incentives to vendors; and (2) Cost pressure on margins to build the
TV and radio business.
- Overall, industry adex grew by 6%. English language
newspaper adex slid by 5%, with Star contributing to an 8% fall.
- Based on our projection, we estimate earnings to expand by
4% in FY13F. This incorporates contributions from I. Star Ideas Factory with a
PBT assumption of RM10mil-RM15mil for FY13FFY14F. Earnings are anticipated to
grow by 2% in FY14F given a turnaround of Cityneon at the operating level by
end- FY13F. Additionally, Li-TV and
Capital FM are expected to break even.
- Meanwhile, cost pressure will stem from the radio business
– Red FM and Suria FM for brand building. Capital FM will remain loss- making
due to amortisation of licence. The estimated capex is at RM20mil, with no
major upgrade in the printing press or system.
- Given the rising popularity of online advertising, the
group is aggressively improving its online portal to capture losses from classifieds
(-10% YoY). Furthermore, election jitters has slowed down MNC’s advertising
spend to-date. Management expects minimal earnings contributions (+<RM2mil)
from the general election.
- The outlook for newsprint prices is stable and it stands
at US$616/MT currently. Star holds a 12-month newsprint inventory, purchased at
>US$650/MT (excluding duties and freight charges). We envisage the group to
only reap the benefits of lower newsprint
prices in 2HFY13.
- Star’s current depressed share price has priced in its weaknesses.
Despite that, Star offers an attractive dividend yield of 7.1% (>7% for the
past three years). This is sustainable given an after-tax FCF yield of 12%.
Furthermore, the group is supported by a strong balance sheet and cash pile of
RM493mil as at end-9MFY12.
- More importantly, valuation is bottoming out. The stock is
trading at 12x FY13F, at the trough level of its 5-year historical PE of 12x-26x.
Hence, our BUY recommendation.
Source: AmeSecurities
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