Star Publications - 1QFY12 comes down as no surpise HOLD

- We re-affirm our HOLD recommendation 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 (Implied PE of 12x).

- Star’s 1QFY12 core net profit of RM30mil (-23% YoY; -42% QoQ), was below expectation, accounting for only for 15% of our and 16% of consensus estimates for FY12F. No dividend was declared for this quarter.

- Star’s 1QFY12 revenue slowdown (+1% YoY; -24% QoQ) came as no surprise as the first quarter is traditionally the slowest quarter. A marginally lower revenue of 1% YoY and slip of 24% QoQ were due to the increase in operating and financing costs at a much faster rate that resulted in a dip of 33% in pre-tax profit on a sequential basis.

- Revenue from the print and new media segment declined 10.3% QoQ. This was in tandem with lower ad spend by advertisers and shorter working period resulting from the Chinese New Year. Simultaneously, the cloudy global economic uncertainty had caused advertisers to adopt a cautious spending. 

- Nevertheless, ad spend is expected to pick up in the coming quarters, bolstered by major sporting events – European Soccer Championship and London Olympics – albeit television-driven events. Total 1Q adex in the country slipped 0.9% YoY and 1.4% QoQ.

- All other segment did not contribute positively to  earnings, except for print and new media segment. 

- Newly acquired television segment, Li-TV, has yet to contribute to the group’s bottom line. The losses were due to  high operating cost such as amortisation of television programmes, transmission cost and marketing cost.

- Excluding amortisation in Capital FM licence, the broadcasting segment would have made a marginal profit of RM0.25mil. More importantly, Red FM remains hot as the only English radio that achieved continuous growth over five years with 300,000 listeners. 

- Management continues to seek opportunities in the Gulf regions such as United Arab Emirates, Oman and Qatar – areas that are not affected by political upheavals or regime changes – for the event exhibition interior and thematic segment. In addition, it will continue to explore the China market and emerging markets in the Indo-China region. 

- Star was the only English-language newspaper that recorded a circulation growth in 2HFY11 (+3% YoY). 

- Hence, we maintain our HOLD rating pending an analyst briefing taking place this late afternoon.   

Source: AmeSecurities