- We maintain our HOLD rating on Star Publications (Star) with a slightly lower fair value of RM2.47/share (vs. RM2.48/share previously), based on our DCF valuation.

- We trimmed FY14 earnings by 4%, as we account for higher operating expenses this year.

- Star reported 1QFY14 earnings of RM16.3mil (-38% YoY, -63% YoY). This accounted for only 11% of our and consensus estimates.

- As expected, no dividends were declared for this quarter.

- 1QFY14 earnings contracted by 38% YoY due to a decline in revenue of 4%, as well as a one-off operating expense of RM9.58mil related to its Voluntary Separation Scheme (VSS) that was recently concluded. Going forward, Star expects to generate savings of RM5mil per year from the VSS.

- Revenue for its core business, i.e. Print and Digital, declined by 10.7%. Poor sentiment among advertisers caused by uncertainties of subsidy cuts and the introduction of GST has resulted in lower adex recorded.

- The ongoing MH370 also played a part in Star’s lower print adex, as travel-related companies and several airlines reduced their adex spending immediately after the disappearance of the airplane. However, our earlier checks revealed that most of these advertisers have since resumed their advertisements.

- Earnings for its event segment continues to improve, and is currently close to break-even in 1QFY14, compared with a loss of RM5mil in the previous year. This is due to additional projects secured by Cityneon with better gross margins. Its radio and television segments also saw their losses narrowing by 6% and 37% respectively, although contributions by these two divisions are still insignificant.

- All in all, we expect Star’s earnings outlook to remain muted for the year, due to the persistent weak sentiment surrounding print adex. Furthermore, Star is unable to benefit from the major sporting events this year, which are more TV driven.

- While Star is embarking on many initiatives to reduce its reliance on income generated from print adex, these initiatives are unlikely to contribute meaningfully in the near term.

- The stock is currently trading at 13x PE for FY14F earnings, compared with Media Chinese’s 8x and Media Prima’s 12x.

Source: AmeSecurities