- We maintain our HOLD recommendation on Star Publications with a lower DCF-based fair value of RM2.45/share (vs. RM2.78/share previously), following adjustments to our earnings estimates.

- We have also assigned a higher discount of 20% (from 10% earlier) to our DCF valuation to reflect concerns on the outlook of the group in view of the weak sentiment over the English print segment.

- Star reported FY13 earnings of RM142.9mil, which are in line with our full-year estimates. As expected, Star declared a dividend of 9 sen/share, which brings total DPS YTD to 15 sen/share.

- FY13 earnings lagged behind FY12’s core net profit of RM146.8mil (after stripping off gains from the disposal of the Section 13 land and impairment costs) by 3%. This was largely due to lower advertising revenue in its print segment as a result of the general election jitters earlier, as well as weaker sentiments caused by the anticipation of the GST introduction and subsidy cuts.

- However, the events segment had improved markedly. Cityneon’s business has finally turned around. Despite a YoY decline in revenue, Cityneon recorded earnings of S$0.8mil in FY13, from a loss of S$4.7mil the previous year. This was due to a reduction in its operating expenses which led to an increase in its gross margin from 24% to 32%.

- Its Perfect Livin’ events also contributed to the improvement of the segment. It generated revenue of RM24mil from 13 exhibitions held, and was on track to deliver the guaranteed RM10mil pre-tax profit.

- We remain cautious on our outlook on Star, as we expect its earnings to be continually affected by weak adex sentiments due to the subsidy rationalisation plan.

- Furthermore, the continuous print-to-online migration in the English segment also provides further weakness to the group’s earnings. The “classifieds” adex has been contracting as it has shifted to larger-scale online portals such as iProperty and JobStreet.com.

- Nevertheless, the current dividend payout assumption implies a still attractive yield of 6.6%, which should provide support to its share price at the current level. The stock is currently trading at 12x PE for FY14F earnings, compared with Media Chinese’s 8x and Media Prima’s 12x.

Source: AmeSecurities