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:

Streamlining operations… Management will continue to streamline its various business units in order to contain expenses given the uncertain Adex environment and prevailing weak sentiment.

Pushing revenue… We were also updated on the various strategic partnerships to push up its circulation/readership and advertising revenue.

Content sharing… The bundled e-paper collaboration with The Nation, Bangkok, Jakarta Post and Philippines Inquirer is expected to launch by end March. Meanwhile, Star will continue to engage with various media owners to cross share content.

Bridging the digital divide… Besides e-paper reaching 70k copies/day which is close to 1/3 of its daily circulation of ~300k copies, the Star Online website continues to generate healthy traffic flow as measured by comScore.

Rental income… Management has also decided to stay put at the existing headquarters in Phileo Damansara, instead of moving to the new 13-storey office in Sections 13, which is slated to be ready by CY2016. The new building will be tenanted out and may generate an estimated rental income of RM10m/year.

Risks

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

Forecasts

FY14 earnings raised by 7.1% to RM146.9m, while introducing FY15-16 forecasts.

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 and cost optimisation plan. Hence, we are reiterating our HOLD call on the company.

Valuation

Although we raised our FY14 earnings forecast, our Target Price remains unchanged at RM2.15 based on required dividend yield of 6.5% as we maintain our estimated dividend of 14 sen/share.

Source:Hong Leong Investment Bank Research - 7 Mar 2014