Star Publications - Adex growth remains muted despite ad rates hike HOLD

Stock Name: STAR
Company Name: STAR PUBLICATIONS (M) BHD

Research House: AMMB

Price Call: HOLD

Target Price: 3.58

- We maintained our HOLD recommendation on Star Publication(Malaysia) Berhad and trimmed our fair value to RM3.58/share, based on a 10%discount to our DCFvalue of RM3.98/share (implied PE of 15x).

- We trimmed our earnings estimate by 3% respectively for FY12Fand FY13F as we tone down our adex assumption. We introduce our new earningsestimate of RM193mil and RM199mil for FY12F and FY13F, respectively, with a growingCAGR over of 9% in FY12F. 

- Industry overall adex is expected to grow high singledigit by 8-9% (2011: 9%) due to potential election taking place globally. Otherregional events such as European Cup and Olympics would support adex spendingwith stronger impact on the TV segment.

- Despite strong industry adex growth, management expects Star'sgrowth to remain flat at 2.5% due to continued market share loss to onlineadvertisers.  

- Meanwhile, 3% increase of ad rates on the front half of 'TheStar' will offset the additional discount offered for other sections, givingrise to a balanced advertising mix. Firmer booking trends would be back ontrack from 2QFY12F onwards as most companies would have their annual marketingplans in full gear. 

- Star would be accelerating capex of RM40mil this year (normally:RM10-30mil) as it seeks to improve on operations acquired in FY11 by upgradingprinting press and system that are getting obsolete. Star has no intention ofpursuing any M&A activities for the time being.

- With current newsprint price of USD623/MT, management expectsnewsprint price to rise as a result of increasing demand in 2HFY12F. Atpresent, Star holds about one year inventory of newsprint. 

- Star has no official dividend policy. Nevertheless, it hasconsistently paid out 60% of earnings from FY09-FY11, translating to anestimated DPS of 18 sen respectively for FY12F and FY13F. It has a strongbalance sheet with estimated net cash of RM252mil in FY12F. 

- Contributions from its new acquisitions remains muted for now.Investments so far have yet to contribute meaningfully to the bottom line.Capital FM is expected to post small losses and Li-TV to break even this year.

- At forward PE of 13x in FY12F, Star is fairly priced inview of its adex growth of 2.5% as a result of adex market share loss to onlineadvertisers and the laggard of capital deployment dilemma. Hence, we re-iterateour HOLD rating with a decent dividend yield of 5.4%.

Source: AmeSecurities