-  We re-affirm our HOLD recommendation on Star Publications, with a lower fair value of RM3.48/share vs. RM3.58/share previously, based on a 10% discount to our DCF value following the release of its 2Q results. 

-  Star registered a 2Q net profit of RM46mil, bringing 1HFY12 earnings to RM75mil. This is below expectations, accounting for only 39% and 40% of our and consensus estimates. This was mainly due to lowerthan-expected advertising expenditure growth in 1HFY12. A dividend of 9.0sen/share was declared, translating into a yield of 2.8%. We are maintaining our DPS forecast at 18sen/share. 

-  On a sequential basis, turnover rose 30%, with earnings growing in tandem by 55%. As anticipated, advertising expenditure gained momentum in 2Q. Compared to the preceding quarter, revenue was slightly up by 1.8%. The losses from the newly-acquired media assets, coupled with higher operating expenses, had lead to a contraction in earnings by 21%. 

-  1HFY12 YoY top line growth grew marginally by 1.4%, mainly stemming from the radio and exhibition segments. However, the lower print advertising revenue and higher operating expenses caused earnings to drag by 22%. The event, exhibition, interior and thematic segment had incurred higher operating expenses stemming from higher marketing and travelling costs to pitch for new projects and higher staff cost from the expansion of the Interior Architecture business.

-  Overall industry adex picked up during 2Q, including that for print. However, events such as the Eurocup and Olympics tend to favour the TV segment rather than print. Therefore, we see little impact on Star's advertising revenue arising from these events. 

-  All in, we have fine-tuned and trimmed our FY12F-FY14F earnings by 3% due to a rather weak 1HFY12 arising from lower-than-expected adex growth and strengthening of US$ at RM3.20/US$ versus our newsprint cost assumption. We envisage a rather flat adex revenue growth for Star at 2% for FY12F.  However, the potential general election that is speculated to be held by year-end could possibly lift earnings in the print segment. We have not included any projections with regard to the recently-announced acquisition of CNM events until we obtain more solid details from management.

-  Star is in a transitory period whereby it hopes to be more than just print and moving towards to becoming a full-fledged multi-media company in the medium term. We are not yet convinced about this, as Star's earnings growth appears to be muted given no contribution to the bottom line from the acquisition of four media assets last year. We believe that these acquisitions will eventually bring positive impact to the company but may take awhile for contributions to kick in. Hence, the outlook for Star remains challenging for the time being.

-  The stock is trading at an implied PE of 12x on FY12F earnings, nearly at par to its average PE of 13x.

Source: AmeSecurities