Period     1QFY13

Actual vs.  Expectations   The group’s 1QFY13 net profit of RM26.8m came in below expectations and accounted for 16.2% and 15.4% of ours and the street’s full-year estimates respectively. Note that Star’s 1Q net profit generally accounts for about 20% of its full-year earnings in the past three financial years. The lower than expected 1QFY13 result was mainly due to 1) lower advertisement revenue as well as in other operating income; 2) a lower contribution from the event segment and 3) a higher taxation rate. 

Dividends    No dividend was declared during the quarter. For the full financial year, we expect Star to declare a 18.0 sen DPS, translating into a 6.9% dividend yield. 

Key Result Highlights   YoY, the 1QFY13 revenue was lower by -4% to RM221m due to the cautious view taken by advertisers in the print segment prior the general election. The group recorded lower contributions from all the key segments namely print and new media (-3.3% to RM183m), Radio (-1.2% to RM12m) and Event (-10.8% to RM23.5m) although this was partially offset by a higher TV segment contribution (+64.3% to RM1.3m). In tandem with the lower turnover coupled with the higher operating costs, the group’s EBIT decreased by 22% to RM38m while its margin fell to 17.1% from 21.0% a year ago.  

QoQ, the group’s revenue fell by 25% as a result of seasonal factors mainly affected by the Chinese New Year holidays and hence, shorter publication days. The group’s PBT also showed a significant decrease from RM113m to RM35m (-69%) mainly due to the gain from the disposal of the Section 13 land recognised in 4QFY12. 

Outlook    STAR’s adex outlook remains a challenge in FY13 due to the lacklustre circulation growth in the English segment and ongoing print-to-online migration. On a positive note, its cost pressure is likely to be mitigated as a result of a more stable newsprint cost, which is currently trading at around USD600/MT. Star holds a 12-month newsprint inventory with an average cost of about USD650/MT.

Change to Forecasts    We have lowered our FY13 and FY14 net profits by 6.4% and 4.2% respectively after imputing in 1) a lower revenue growth and 2) higher operating cost assumptions.   

Rating  Maintain OUTPERFORM

Its valuation has dropped to a six-year low. The attractive dividend yield of 6%-7% could cushion further downside risk.

Valuation     However, we have lowered our TP to RM2.87 (from RM2.94 previously) after rolling over our valuation base year to FY14 with a lower targeted PER of 12.6x (-1.5x SD) from 13.4x previously (-1.0x SD).

Risks    The CY13 gross adex growth coming in below our expectation of RM12.3b (+8% YoY).

Source: Kenanga