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

- 1QFY13F appeared to be challenging for Star as adex declined by 5% compared with the same quarter last year due to weak market sentiments. However, with the conclusion of the 13th GE, we expect a marginal improvement in adex in 2HFY13F.

- We understand advertisers are gradually moving back to colour ads from the cheaper black and white ads.

- Circulation has marginally improved with daily circulation of 290.5k copies as at June FY12. Subscribers of its e-bundled package stand at circa 50k. Management indicates that renewal of subscription fee for the initial early-bird subscribers will remain at RM260, while the others will have to pay RM360 to subscribe.

- With its Classifieds segment losing market share to the online platform, Star will focus on improving further its job and property online portals. It is also looking at launching a motoring portal in 2HFY13F, enhanced with value-added services.

- For the purpose of establishing a stronger foothold in the digital space, Star has created a RM20mil fund to invest in IT-related business start-ups.

- Star is looking at further developing its TV segment by having a joint venture with a local production house to come up with more channels. LiTV will also be collaborating with the print division to have advertisement pullouts in the Star newspaper. Although lossmaking at the moment, management expects LiTV to breakeven in FY14F.

- The group has reaffirmed its intention to divest its loss-making unit Cityneon upon earnings returning to the black, as early as FY13F. This would be done in stages to minimise its losses. The proceeds could then possibly be channelled into funding the expansion of its non-print segment.

- Average newsprint cost remains at c. US$650/MT. We expect the average cost to ease from 2HFY13F onwards, when it restocks its inventory, given the currently low newsprint price (at US$603/MT).

- Management indicates that there is no significant capex for the year. We estimate a capex of RM10-12mil p.a.

- We expect DPS to be maintained at 18.0 sen, in line with its historical DPS, which equates to a yield of 7%. This is against the backdrop of an RM474mil cash pile as at end of FY12.

- The stock is currently trading at a trough level at a forward PE of 12x FY13F, comparable to Media Prima’s 12x and ahead of MCIL’s 10x.

Source: RHB