Highlights

We attended Star’s 1QFY14 briefing chaired by the Managing Director/CEO, Datuk Seri Wong Chun Wai, and the management team. Below are the key takeaways:

1Q review… 1Q14 weak performance was mainly due to the cut back on advertisers spending as a result of MH370 incident coupled with seasonal factors (more holidays equals to lower publication days) and weak consumer sentiment.

On a more positive note, management’s effort to streamline its business units in order to contain expenses will bear fruit in the coming quarter as the voluntary separation scheme (VSS) expenses (reported in 1Q14) was non-recurring in nature and will result in lower expenses in the quarters ahead. In addition, other business segments such as event and TV are progressing well with losses to narrow down in coming quarters.

For the Star’s E-paper, the company is expected to reach 100k subscribers in the next 3 months underpinned by the recent collaboration with Philippines Inquirer, Jakarta Post and The Nation, Bangkok, to bundle its e-paper together.

Dividends to maintain… Management will strive to match the previous year’s dividend payment of 15 sen/share (vs our forecast of 14 sen/share). We believe that Star will have no problems in paying out the dividends as it is in a net cash position of RM313m or 42.3 sen/share as of the first quarter of FY14.

Muted Outlook… We expect the upcoming mega sporting events (FIFA World Cup) to have minimal favourable impact on Star’s earnings.

Risks

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

Forecasts

Unchanged.

Rating

HOLD

Despite Star’s earnings being impacted by the weak Adex growth outlook, we see a better prospect for Star based on their prudent cost management coupled with narrowing losses from TV and event businesses. Hence, we are reiterating our HOLD call on the company

Valuation

TP revised upwards by 8.4% to RM2.33 from RM2.15 based on a lower targeted dividend yield of 6.0% (6.5% previously) as we expect higher free cash flow arising from better cost management coupled with narrowing losses from, TV and event. We maintain our estimated dividend of 14.0 sen/share.

Source: Hong Leong Investment Bank Research - 3 Jun 2014