Larger Smaller Reset Star Publications (Malaysia) Bhd
(Dec 27, RM3.24)
Maintain reduce at RM3.18 with target price of RM3.04: For 9M11, Star Publications' non-core businesses (excluding its publication and radio business) contributed to a revenue loss of RM114.5 million and a pre-tax loss of RM6.2 million. The main contributor to its non-core business is its event management and exhibition operations ' via 59%-owned Cityneon Holdings. This division is going through a rough patch having contributed positively in the year before (9M10: revenue RM146.6 million and RM8.6 million profit). The sharp swing in earnings highlights the increased volatility of Star's earnings, as opposed to its relatively more stable revenue and earnings from its publication and radio business. Moreover, we see heightened risk to Star's earnings after successive investments in other non-core assets. Recall that since May 2011, Star has made four additional investments amounting for RM56 million, which includes a radio station, a TV channel, an online media business and most recently a Chinese weekly publication. Note that as at 9M11, Star accounted for maiden pre-tax losses of RM2.5 million from its TV channel, Li TV.


But we believe that Star's acquisition trail could persist into 2012, judging from its unutilised proceeds of its medium-term notes (MTN) raised earlier this year. Approximately RM48 million of the RM200 million raised remains unutilised. Star had nevertheless sought to raised up to a total of RM750 million in commercial paper and MTN for working capital, capital expenditure and corporate purposes earlier, leading us to believe that Star may continue to step up its diversification programme. This, in our view, increases the vulnerability of its free cash flow and leaves greater downside implications for its dividend outlook. Disappointingly, Star trimmed its 1H11 dividend per share to 9 sen (1H10: 10.5 sen).

Back to its core operations, Star's circulation has improved from 279,000 for the July-December 2010 period to 288,000 for January-June 2011. Star's circulation could have further improved in recent months with its promotional efforts to spur circulation, although any spike is likely to be one-off. The declining circulation trend is likely to persist, not merely for the Star newspaper, but for English mainstream papers as a whole. This is coming at the expense of other media platforms, in particular online media, especially with improved broadband. Longer term, this negative trend will continue to hamper advertising expenditure revenue to the print segment and particularly the English newspaper sub segment. Note that adex to the Malay and Chinese print segments has turned increasingly important as an advertising channel (English accounted for 53% of print adex in 2000, declining to 44% as at end-2010). ' Affin IB Research, Dec 27

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This article appeared in The Edge Financial Daily, December 28, 2011.