Thursday, 7 March 2013

Star Publications - Trying Hard

We attended STAR’s post-4Q12 result briefing yesterday, which was led by the group’s top management. The key highlights of the briefing focused on 1) the company’s dividend; 2) circulation trend; 3) the outlook of Cityneon and 4) an update on its existing businesses. Star intends to maintain its targeted dividend yield of 7% in FY13, which translates to a targeted DPS of 18.0 sen based on our estimate. Management also intends to divest its investment in Cityneon in the future after its earnings return to the black by end-FY13. Post-result briefing, we have raised our FY13-FY14 DPS forecast to 18.0 sen (from previous 16.4 sen and 17.8 sen in FY13E-FY14E) to align with the management’s guidance but are keeping our earnings forecasts unchanged. Our Star target price remains unchanged at RM2.94, based on an unchanged targeted PER of 13.5x (-1SD). We reiterate our OUTPERFORM call on Star given that the group's PER valuation has dropped to a six-year low coupled with its attractive dividend yield of 7%.

Star intends to maintain its targeted dividend yield of circa 7.0%, although the group does not officially have a formal dividend policy in place. The targeted dividend yield of 7% translates to a targeted DPS of 18.0 sen based on our estimate. This would be 1.1%-9.8% higher compared to our earlier FY13-FY14 DPS forecasts of 16.4 sen and 17.8 sen respectively. We have thus raised our FY13-FY14 DPS forecasts to 18.0 sen for each of the year to align them with the management’s guidance. Our DPS forecast implies a dividend payout ratio of 82.3% for FY13 and 75.5% for FY14.

Marginal improvement in circulations. According to the Audit Bureau of Circulations, STAR’s latest average daily print circulation (for the period of JanJun 2012) has managed to cross back the 290k level to 290.5k copies as of endJune 2012. The number is a slight improvement as compared to the 287.2k copies recorded during the period of Jul-Dec 2011. Notably, the latest June 2012 circulation number was the second consecutive bi-annual improvement since CY05. As for its e-paper circulation number, Star recorded 7.7k copies as of Jun 2012 following the launch of its e-bundled package since April last year. We understand that the group has around 50k e-paper subscribers to date.

Intends to divest Cityneon in the future. Management is planning to divest its 64.1% subsidiary – Cityneon, which is currently listed in Singapore Stock Exchange, in the future after the latter’s earnings return to the black. The key rationale is to re-align it with the group’s latest strategies, where the focus will be concentrated on the Print, Digital, TV and Radio segments. We understand that the group has invested a total amount of RM83m in Cityneon. To recap, Cityneon posted a net loss of SGD4.7m as of end-FY12 as a result of a weaker gross profit margin and higher operating expenses that were mainly caused by expansion and overhead costs. Going forward, management intends to adopt more stringent cost control and expects Cityneon to return to the black by endFY13.

Eyeing other small mediums. STAR is still actively looking for more media mediums to further enrich and strengthen its contents. While management is reluctant to further elaborate on this issue, we suspect that any upcoming acquisitions could be related to car online. The potential acquisition may come from the regional targets rather than local due to the limited selection in the latter.

Expecting a mild adex growth in CY13. STAR is expecting the overall adex to grow by 5% YoY in CY13, in line with the other industry players’ of 5%-8% range. Newsprint-wise, the group is currently holding more than a 12-month inventory with an average cost of USD660/MT.

Source: Kenanga

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