- We maintain our HOLD recommendation on Star Publications with an unchanged fair value of RM2.78/share, based on our DCF valuation.

-  Star reported 3Q13 net profit of RM44mil (+54.3% YoY, +28.4% QoQ), bringing 9MFY13 earnings to RM98.7mil (-11.1% YoY).

-  We deem the results to be in line, accounting for 72% of our full year estimate and 73% of consensus estimates, as 4Q is expected to be seasonally stronger with the year-end festive period.

-  As expected, no dividend was declared this quarter. We maintain our DPS payout assumption of 15 sen/share.

-  3QFY13 revenue rose by 3.1% QoQ and 5.1% YoY, mainly due to an increase in revenue in the event segment for the quarter. Coupled with significant savings in its operating costs, the group saw a strong rebound in its earnings by 54.3% QoQ and 28.4% YoY.

-  However, on a YTD basis, 9MFY13 earnings still lagged behind 9MFY12’s. This is mainly caused by lower advertising revenue in its print segment due to general election jitters and adverse sentiments caused by expectations of the subsidy rationalisation, implementation of GST, and fuel price hike.

-  Overall YTD revenue for its event segment fell by 13.3%, due to lesser projects completed by Cityneon. However, I.Star Ideas Factory’s Perfect Livin’ events is on track to deliver the guaranteed RM10mil pre-tax profit, generating a revenue of RM19.3mil YTD from 9 events held, compared to only 2 in the same period last year.

-  Newsprint is currently traded at US$590/MT. However the weakening ringgit against the USD has offset the declining trend of the newsprint spot price. No effect on Star in the near term as it currently has an inventory level of ~12 months, which it intends to reduce to 8 months.

-  We retain our earnings forecast and expect adex for Star to remain subdued, given the weak adex outlook in the English print segment. We expect Star’s adex to decline by 3% for the year, followed by a 1% growth in FY14 and 2% in FY15.

-  The stock is currently trading at 13x PE on FY14F earnings, compared with Media Chinese’s 10x and Media Prima’s 12x. The current dividend payout assumption implies a yield of 5.9%.

Source: AmeSecurities