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

- Star registered a net profit of RM23mil (-19% YoY, -27% QoQ) for 1QFY13, accounting for 17% and 15% of our and consensus estimates respectively.

- We deem this to be in line with market expectations as 1Q is seasonally the slowest quarter and advertisers only tend to exhaust their budgets towards the later part of the year.

- This was further exacerbated by uncertainties due to the general elections, which caused advertisers to hold back spending. However, with the GE behind us, we expect adex to marginally improve in the second half of the year.

- All other segments besides the print, continue to be loss making. The radio segment recorded a higher pre-tax loss of RM1.23mil compared to RM0.95mil in the previous corresponding period due to higher advertising and promotion expenses.

- Management highlighted its continuing efforts to return Cityneon’s earnings to the black by FY13F by reducing operating expenses and growing its revenue in the thematic and interior design businesses, where there are more opportunities.

- As per management’s guidance previously, Cityneon will be divested when the business turns around, and is part of Star’s realignment strategy. We believe that the proceeds will be used to expand its non-print business, i.e. digital space.

- Despite LiTV registering a pre-tax loss of RM2mil due to higher programme and marketing expenses. Management indicated that it will further develop its TV segment through joint venture with a local production house to come up with more channels. Management expects LiTV to breakeven in FY14F.

- Moving forward, Star will focus on establishing a stronger foothold in the digital space to offer more advertising platforms to its clients. For this purpose, Star has created a RM20mil fund to invest in IT-related business start-ups.

- Newsprint prices remain subdued and last traded at the spot price of US600/MT. We view this positively as Star restocks its inventory, usually on a quarterly basis, at a lower price.

- No dividend was declared for the quarter. We expect DPS to be maintained at 18.0sen, in line with management’s guidance, which equates to a yield of 7%, higher than MCIL’s 5% and Media Prima’s 4.5%

- The stock is currently trading at a trough level of 12x PE, at parity with Media Prima’s. MCIL is trading at 10x.

Source: AmeSecurities