Highlights

We attended Star’s 9MFY13 briefing chaired by the Managing Director, Datuk Seri Wong Chun Wai, and the management team. Below are the salient points.

Strong October but still cautious… Management shared that despite the conclusion of General Election, sentiment among advertisers were still cautious. For 4Q, October, was a strong month for advertising expenditure. However, following the Budget announcement on GST, subsidy rationalisation and property tightening measures, sentiment returned back to the cautious mood.

Verdict still out there… As for 2014 Adex growth outlook, although key events like Brazil World Cup and Visit Malaysia Year should support Adex growth, Adex growth estimates ranges from 8-12%, without strong conviction among the industry analysts/media agencies. We believe that the cautious sentiment will continue to persist.

Hitting the streets… Likewise with the rest of the media owners, Star’s management has also been taking proactive steps to secure Non-Traditional Advertisers, i.e. various Government agencies, offering them its various advertising solutions in order to overcome the current challenging Adex climate.

Collaboration… As an innovative way to bolster its circulation base (currently at circa 300k copies/day), Star has entered into a collaboration with Philippines Inquirer, Jakarta Post and The Nation, Bangkok, to bundle its e-paper together. We are positive on this collaboration given the potential advertising revenue from regional corporates i.e. airlines and banks. The e-paper model has lower cost structure from conventional print (thereby offering better margin) and is highly scalable.

Digital property… To continue to refine and enhance user experience for its online portal for properties whereby StarProperty will cater for the primary market and Propwall for the secondary market. This will address the decline in advertising revenue from the property classified segment.

Event turnaround… CityNeon which posted a LBT of S$4.97m in FY12 is expected to breakeven this year. The division has an outstanding order book of S$90m and is expected to secure more projects from Shanghai Disney land and in the Middle East region.

Risks

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

Forecasts

Unchanged.

Rating

HOLD

For the intermediate term, we see Star’s earnings being impacted by the weak Adex growth outlook, gestation period of new business ventures but partly offset by cost optimisation plan. Hence, we are reiterating our HOLD call on the company.

Valuation

Target Price maintained at RM2.46 based on required dividend yield of 6.5%.

Source: Hong Leong Investment Bank Research - 27 Nov 2013