Star Publications (M) Bhd (Nov 24, RM3.18)
Maintain neutral at RM3.17 with revised fair value of RM3.23 (from RM3.34): Star’s 9MFY11 revenue came in at RM766.3 million, which was flat year-on-year with weaker numbers at its core print media business (-1% y-o-y) as well as the events and exhibition organising (EEIT) segment (-23% y-o-y). This was offset by the RM40.8 million improvement in its radio broadcasting unit.
Operating profit dropped marginally y-o-y by 1% to RM192.9 million accompanied by a 20-basis point dip in earnings before interest and tax (Ebit) margin to 25.2%, dragged down by its loss-making EEIT and newly acquired paid TV segment. Nonetheless, the group’s core earnings of RM136.2 million marked a decent 4% improvement y-o-y, lifted by a lower effective tax rate and excluding its minorities’ share of losses in these segments. On a quarterly basis, 3QFY11 core earnings stood at RM40.7 million, down 5% y-o-y and a sharp 26% quarter-on-quarter contraction, owing to losses at its EEIT business, which is volatile and highly dependent on economic conditions.
While we expect its core print media segment to contribute more in 4QFY11 on seasonally stronger advertising expenditure (adex) in view of the upcoming major festive seasons, we are cautious on its EEIT segment given the weak macroeconomic environment. Hence, we are taking this opportunity to revisit our model and revise lower our earnings per share forecasts by 7% for FY11 and 4% for FY12.
Our fair value now stands at RM3.23, pegged at an unchanged 13 times FY12 price-earnings ratio to our revised forecasts. Given the limited upside, our “neutral” call is maintained. Although we continue to see strength in adex in view of the upcoming major festive seasons in 4QFY11, we remain cautious on account of Star’s loss-making EEIT business, especially amid a deteriorating macroeconomic outlook as well as its shrinking readership. These point to a potential erosion in its adex share in the long run.
The stock’s key re-rating catalysts are: (i) more affirmative indications on the utilisation of the proceeds from its proposed RM750 million debt raising; (ii) more strategic acquisitions to complement its existing business, and (iii) a better showing from its currently loss-making EEIT business. — OSK Research, Nov 24
This article appeared in The Edge Financial Daily, November 25, 2011.
Maintain neutral at RM3.17 with revised fair value of RM3.23 (from RM3.34): Star’s 9MFY11 revenue came in at RM766.3 million, which was flat year-on-year with weaker numbers at its core print media business (-1% y-o-y) as well as the events and exhibition organising (EEIT) segment (-23% y-o-y). This was offset by the RM40.8 million improvement in its radio broadcasting unit.
Operating profit dropped marginally y-o-y by 1% to RM192.9 million accompanied by a 20-basis point dip in earnings before interest and tax (Ebit) margin to 25.2%, dragged down by its loss-making EEIT and newly acquired paid TV segment. Nonetheless, the group’s core earnings of RM136.2 million marked a decent 4% improvement y-o-y, lifted by a lower effective tax rate and excluding its minorities’ share of losses in these segments. On a quarterly basis, 3QFY11 core earnings stood at RM40.7 million, down 5% y-o-y and a sharp 26% quarter-on-quarter contraction, owing to losses at its EEIT business, which is volatile and highly dependent on economic conditions.
While we expect its core print media segment to contribute more in 4QFY11 on seasonally stronger advertising expenditure (adex) in view of the upcoming major festive seasons, we are cautious on its EEIT segment given the weak macroeconomic environment. Hence, we are taking this opportunity to revisit our model and revise lower our earnings per share forecasts by 7% for FY11 and 4% for FY12.
Our fair value now stands at RM3.23, pegged at an unchanged 13 times FY12 price-earnings ratio to our revised forecasts. Given the limited upside, our “neutral” call is maintained. Although we continue to see strength in adex in view of the upcoming major festive seasons in 4QFY11, we remain cautious on account of Star’s loss-making EEIT business, especially amid a deteriorating macroeconomic outlook as well as its shrinking readership. These point to a potential erosion in its adex share in the long run.
The stock’s key re-rating catalysts are: (i) more affirmative indications on the utilisation of the proceeds from its proposed RM750 million debt raising; (ii) more strategic acquisitions to complement its existing business, and (iii) a better showing from its currently loss-making EEIT business. — OSK Research, Nov 24
This article appeared in The Edge Financial Daily, November 25, 2011.
