We attended STAR’s post-1Q13 results briefing yesterday. The key highlights of the briefing focused on: 1) the company’s dividend, 2) its expansion plans; 3) newsprint inventory and 4) an update on its existing businesses.  Star intends to maintain its targeted DPS of 18.0 sen in FY13, which would translate into a dividend yield of 6.4%. Management intends to further expand its media portfolio by adding more radio stations as well as inking several smart partnership agreements in its TV segment with the global/regional digital video/media players over the next few months. Meanwhile, the group’s newsprint inventory has further increased to 16 months (from 12 months previously), which should be able to provide some earnings shelters should the government decide to impose an anti-dumping duty on newsprint rolls. There is no change in our Star’s FY13-FY14 earnings forecasts.  We are maintaining our Star target price at RM2.87, based  on an unchanged targeted FY14 PER of 12.6x (-1.5x SD).  The group’s share price has improved by 16% over the past one month. With the current share price just 2.1% away from our target price, we are downgrading our recommendation on the stock to a MARKET PERFORM. Nevertheless, the group’s attractive dividend yield of 6%-7% could provide a shelter in uncertain periods.     

Maintaining its targeted dividend per share (“DPS”) of 18.0 sen for FY13.  Note that the group does not actually officially have a formal dividend policy in place. The targeted DPS of 18.0  sen implies a dividend yield of 6.4%, in line with ours as well as the consensus estimate. 

Will continue to expand its media portfolio. Star is planning to expand its radio station portfolio within the next few months. While management is reluctant to further elaborate on the upcoming acquisitions, we believe it should involve the acquisitions of private-owned rather than state-owned radio stations. At present, the group has a total of four radio stations namely Red FM, Suria FM, Capital Radio and 988 in its radio station portfolio. The investment gestation period is expected to be at least 1-2 years based on its historical track record. 

Planning to enter some smart partnership agreements. On the TV front, Star is planning to ink some smart partnership agreements with the global/regional digital video/media players within  the next few months. While the details of those agreements are unknown at this juncture, we understand that the group is only interested to be a content provider under the abovementioned smart partnerships. 

Ample newsprint inventory to sail through the anti-dumping newsprint wave, if any.  The group has further increased its newsprint inventory level to 16 months (from the previous 12-month  stocks it had in March) with an average cost of about USD650/MT. With the ample of newsprint inventory, Star believes that it will unlikely to be affected adversely, at least for the short term, should the  government impose an anti-dumping duty on newsprint rolls. To recap, the authority had announced that it would initiate an investigation into possible anti-dumping of newsprint rolls from four European countries namely Belgium, Germany, Sweden and Britain into Malaysia. We understand that the authority has initiated an investigation since April but has yet to make a final decision at this juncture. If the final decision is in the affirmative, we understand that the authority may impose an anti-dumping duty based on the margin of dumping thus causing the cost of newsprint rolls to increase from the abovementioned countries.

Source: Kenanga