Background

Star Publications (Malaysia) Berhad ('Star') is principally engaged in the publication, printing and distribution of newspapers and magazines. It is the publisher of the Star newspaper, the largest English language newspaper in Malaysia.

Next Growth Engine

In late 2008, Star took over the Singapore-listed, Cityneon Holdings Ltd when it offered S$0.58 (RM1.39) cash per share in Cityneon. The total cost of the acquisition was about S$34mil (go here). After the takeover, Star undertook a private placement of shares in order to comply with the minimum public shareholding spread of 10% of its shares in the hands of the public. After the placement, Star's stake in Cityneon was reduced to 59%

Cityneon?s core activities include exhibition and event management services while its other areas of expertise include interior architecture, galleries and thematics. Cityneon serves its international client portfolio through various subsidiaries in Asia and the Middle East, delivering events and exhibitions across the Americas, Europe, Asia and the Middle East. Cityneon was relisted in September 2009 on SGX. It has more than double its order book to S$110mil from S$52mil in January (go here).

Recent Financial Results

Star has just announced its results for QE31/12/2009, where its net profit increased by 87% q-o-q or 357% y-o-y to RM60.9 million while turnover increased by 29% q-o-q or 49% y-o-y to RM315 million. The increased top-line & Bottom-line came from Cityneon, which contributed RM11.7 million of Star's overall pre-tax of RM97 million and RM222 million of Star's total turnover of RM974 million for FYE31/12/2009.


Table 1: Star's 8 quarterly results

From Chart 1, we can see that Star's top-line & bottom-line had jumped up strongly in the past 3-4 quarters.


Chart 1: Star's 13 quarterly results

Valuation

Star (closed at RM3.20 yesterday) is now trading at a PER of 10 times (based on annualized EPS of 33 sen). Star pays a dividend of 21 sen for the past 3 years, which translates to a dividend yield of 6.6%. For a stable consumer stock, I believe Star should trade at a PER of 13-15 times. Assuming a PER of 13 times, Star's fair value is about RM4.30.

Technical Outlook

Star's chart can be summarized in one word: Semi-comatose! It is range-bound at RM2.80-3.70 (or, RM3.00-3.50). This may be about to change...


Chart 2: Star's monthly chart as at Feb 10, 2010 (Source: Tradesignum)

Conclusion

Based on attractive valuation & improved financial performance, Star should be a good stock for long-term investment.