News

To acquire 90% stake in Ocision S/B from Ng Say Joe, Tan Swee Yeong and Crystal Horse Investments P/L for RM13.5m. Ocision owns 3 internet portals, namely iBilik.com, Propwall.com and Carsifu.com.

Highlights

About the portals… Propwall.com will cement Star as one of the top 3 providers of property classified portal in Malaysia in terms of traffic rank and pageview while iBilik.com will turn it as the leader in short term stay and room classified space in Malaysia. Carsifu.com is an online portal for new/used cars for sale.

Positive on portals… We are POSITIVE on this acquisition as it will address the softness in Star’s “Classified” segment of Adex revenue. With the migration of Adex money from “Classified” to online, Star will now be able to capture this online source of revenue.

We believe that it is also a synergistic acquisition as it will collaborate hand-in-hand with the “Classified” segment and fast track the digitisation process. The scalability advantages coupled with Star’s readership and the respective websites’ visitors, and higher profit margin from online Adex, make it an attractive investment case.

Valuation of portals… Based on FYE Dec-11’s numbers, Ocision S/B posted revenue of RM1.18m with losses of RM42.57k. Hence, the acquisition price translates to a Price/Revenue ratio of 10.3x compared to JobStreet’s Price/Revenue ratio of 7.2x. Balance sheet impact is minimal as Star is in a net cash position of RM174.3m (23.6 sen/share) as of 1QFY13.

Risks

Weak Adex growth; High newsprint cost; Threat of new players; Depreciation of RM vs US$; and Regulatory risk.

Forecasts

Unchanged. Subject to revision after analyst briefing next Monday.

Rating

HOLD

Positives: (1) Strong recovery in the global economy; (2) Strong domestic consumption which reinforces business confidence to spend on Adex. (3) Quicker gestation period for its new business venture.

Negatives: (1) Weak domestic consumption; (2) Continued deterioration in the Euro debt crisis which dampens business confidence.

Valuation

TP maintained at RM2.77 based on required dividend yield of 6.5%. We believe that the company has sufficient cash to maintain its dividend payment regardless of earnings. Subject to revision after analyst briefing next Monday.

Source: Hong Leong Investment Bank Research - 03 Jun 2013