Star Publications - Weaker FY 12 but improvement seen in 4Q BUY

- We re-affirm our BUY recommendation on Star Publications, with an unchanged fair value of RM3.10/share based on our DCF valuation.

- Stripping off a one-off exceptional gain on disposal of a Section 13 land, Star’s FY12 core net profit totalled RM147mil (-21% YoY). This we deem to be in-line with our expectations, constituting 95% of our forecast but below consensus estimates at only 93%.

- The group declared a final dividend of 9 sen/share, bringing FY12 DPS to 18.0 sen/share, equal to our forecast.

- The weaker FY12 core net profit was largely due to:- (1) Gestation period of the media assets acquired in FY11; (2) Weaker print advertising revenue – hypermarkets shifts from coloured to black and white advertising coupled with additional vendors’ incentives; and (3) Building of TV and radio business leading to margin pressures.

- Sequentially, the stronger 4Q net profit of RM37mil (+7% YoY, -27% QoQ) is seasonally as advertisers tend to exhaust their budget towards the year-end. However, election jitters had caused adex momentum to be muted in FY12 compared to preceding year.

- Industry adex grew by 6% (vs. FY11’s 12%). English language newspaper adex fell 5%, where Star fell by 8%.

- Post-FY12 results adjustments, we have thus projected earnings to expand by 5%-6% for FY13F-FY15F. We have also introduced FY15F earnings at RM174mil.

- Cityneon is expected to turn around at the operating level, and Li-TV and Capital FM are expected to break-even by end-FY13F. But, cost pressure will continue to stem from its radio business for brand building exercises.

- A better adex momentum is expected in 2HFY13 (post general election) due to better-than-expected adex sentiment.

- The retracement of Star’s share price is in view of the rising earnings risk profile and weaker market sentiment as the general election draws near.

- We therefore see Star’s recent share price weakness as a good opportunity to accumulate a liquid and large cap proxy at reasonably attractive levels. More importantly, Star offers attractive yields at 7%.

- Valuations are undemanding. The stock is currently trading at a trough level of 12x FY13F, with room for more dividend surprise. This is in light of the group’s huge cash pile of RM474mil and after-tax free cash flow yield of 11%.

Source: AmeSecurities