We expect Star Publications ('STAR') to report a lower-thanexpected set of 1Q12 results (scheduled for release on 23 May) due to the poor gross adex revenue experienced in the quarter. This is because there was a marginal drop of 1.4% in the YTD March overall gross adex. However, we expect the adex sentiment to improve from 2Q onwards due to some scheduled mega sport events and a likely General Election. STAR's recently launched ePaper bundle package has received a 5.5% conversion rate during the first week of May with a targeted rate of 30% by end July. We are keeping our FY12-FY14 earnings forecasts unchanged at this juncture pending the upcoming 1Q12 result. We are also maintaining our MARKET PERFORM call on STAR with an unchanged target price of RM3.26, based on a targeted forward PER of 12.9x (-1SD below the mean). 

Weak 1Q12 as a result of poor adex revenue. We expect STAR's 1Q12 turnover and net profit to come in about 8% and 10% below our initial forecasts of RM262m and RM48m, respectively, as a result of poor adex performance during the quarter. Our FY12E net profit of RM187m is already 2.7% below the consensus estimate of RM192m. No dividend is expected to be declared for the quarter. For the current financial year, we expect STAR to declare a total gross dividend per share of 19.0 sen, which implied a 75% dividend payout ratio and a 5.8% dividend yield.      

The YTD newspaper gross adex slipped 1.1% to RM974.2m according to Nielsen, hurt by the negative growth in both the English (-7.1% YoY) and Chinese (-1.8% YoY) segments but partially offset by higher contribution form the Malay (+5.9% YoY) segment. For the English segment, Malay Mail gross adex experienced the biggest slide of 27.8% YoY to RM5.1m, followed by STAR, which fell 8.6% to RM224.6m. The drop in STAR's 1Q12 gross adex in our view was mainly caused by its deteriorating circulation number, thus prompted the company to launch its e-Paper version in a hope to regain its circulation level.

Expecting adex to gradually improve from 2Q onwards. Despite a marginal drop in the YTD March gross adex to RM2.27b (-1.4% YoY), we, however, expect the adex to start performing from 2Q onwards. For CY12, 2Q and 3Q will be the key boosters to the overall adex given the mega sporting events in these periods (i.e. the Olympic game from 27 July ' 12 August & UEFA EURO from 8 June ' 1 July) as well as a potential General Election. We are maintaining our CY12 adex growth forecast of 11.1% at RM11.9b, based on a 2.3x GDP multiplier (the average of the past two General Election years).    

Recorded 5.5% conversion rate on the e-Paper bundle package during the first week of May.STAR has launched an aggressive bundled package (e-Paper + printed version) since early May with a reduced price of RM260/year in contrast to the traditional RM460/year for the printed version only. The steep discount on the subscription price has managed to attract 5.5k of its current subscribers to convert to the e-paper bundled package during the first week of May. We understand that management is targeting to convert 30k of its current 100k printed version  subscribers during the

three-month promotion period. While we believe the  e-Paper edition is a right move to tackle the younger group, especially  the tech-savvy readers, we, however, believe that it will hurt STAR's circulation revenue given that the new rate is a 43.5% discount from the old subscription fee.    


Source: Kenanga