Stocks to watch: Plantations, Supercomnet, TDM, Poh Kong

KUALA LUMPUR (March 27) : PLANTATION [] stocks could be a highlight for Malaysian stocks on Wednesday as investors weigh the effects of pre-election sentiment in the country against world economic growth concerns.

Malaysian crude palm oil (CPO) futures rose to a fresh high of RM3,485 a tonne on Tuesday in anticipation of declining oil palm output against higher demand for the commodity.

As plantation firms make up about a fifth of the FBM KLCI’s weightage, improving sentiments on CPO prices could give a lift to the stock market gauge.

However, analysts said “shrinking volume and cautious sentiment” in the stock market ahead of the country’s general election may curb the FBM KLCI’s advance.

The FBM KLCI of 30 stocks rose 5.12 points to close at 1,588.1 on Tuesday.

Stocks to watch on Wednesday include plantation stocks, Supercomnet Technologies Bhd, TDM BHD [] and POH KONG HOLDINGS BHD []. Other counters which could see trading interest are UMW HOLDINGS BHD [], STAR PUBLICATIONS (M) BHD [] and CAHYA MATA SARAWAK BHD [] (CMSB).

Supercomnet Technologies Bhd, whose share price fell on Tuesday after surging on Monday, stated Mohd Nazifuddin Mohd Najib was not taking up the option to purchase an 18.66% stake in the company.

TDM Bhd has proposed a final dividend of 18.5 sen per share, tax exempt for the financial year ended Dec 31, 2011.

Poh Kong, a jeweller, said its net profit rose 31% to RM12.43 million in the second quarter ended Jan 31, 2012 from RM9.52 million a year earlier as the jeweller raked in higher sales against the backdrop of rising gold prices.

RHB Research Institute has revised upwards its earnings forecast for UMW by between 0.8% and 1% for financial years ending Dec 31, 2012 to 2014, besides raising its target price for the stock from RM6.70 to RM7.30.

Star Publications’ shares will go ex-dividend on Wednesday. The company dad declared a second interim dividend of nine sen a share for financial year ended Dec 31, 2011.

CMSB and Rio Tinto plc have called off plans to jointly establish an aluminium smelter in Sarawak as electricity-supply details for the project could not be finalised.



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Media: Meek end to 2011

Media sector
Maintain underweight: Total gross advertising expenditure in December 2011 was up only 1% year-on-year (y-o-y), while TV adex contracted 2% y-o-y, the third consecutive month of contraction. With consumer sentiment at a two-year low, total gross adex growth in 2012 will likely be off to a slow start. Maintain “underweight” on the media sector.

Although newspaper adex still grew 6% y-o-y, this was the weakest growth since February 2011. By language, we understand that newspaper adex growth was driven by the Malay and Chinese newspapers, while adex of English newspapers was flattish if not lower y-o-y.

Gross adex growth for 2011 of 8% was within expectations and a tad higher than our forecast of 7%. By segment, however, TV adex growth of 4% was below our expectation of 7% while newspaper adex growth of 12% was above our 5% expectation. The eurozone debt crisis drove European multinationals to migrate more of their ad spend from TV to cheaper mediums such as newspapers in 2H11.

Media Chinese International Ltd, which owns Sin Chew Daily, remains a 'hold'.

There is a high correlation between consumer sentiment and total y-o-y adex growth. The Malaysian Institute of Economic Research (Mier) Consumer Sentiment Index hit a two-year low of 106.3 in 4Q11 on job security and inflation concerns. With consumers expected to reduce spending going forward, adex growth will be negatively affected.

We maintain our 2012 total gross adex growth forecast of 7% based on two times real GDP growth.

We understand that spot newsprint prices eased from US$700 (RM2,128) per tonne in 3Q11 to US$680 in 4Q11 due to the slowing Chinese economy negatively impacting old newspaper prices, the raw material for newsprint production. That said, it remains to be seen if the slowing Chinese economy will negatively impact the Malaysian economy and hence, adex growth, even further.

As 2011 TV adex growth of 4% was below expectation of 7%, we may have to review our Media Prima Bhd estimates. We reiterate our view that total y-o-y gross adex growth
going forward will be in mid-single digits at best until mid-2012 at the earliest.

Media Prima and Media Chinese International Ltd remain “sells”, while Star Publications (M) Bhd remains a “hold” for its stable dividend yields of more than 5%. — Maybank IB Research, Jan 26



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Star moves into mobile Internet

KUALA LUMPUR: Star Publications (M) Bhd is venturing into the provision of free wireless broadband service in Sweden together with ACE Market-listed MNC Wireless Bhd.

It is learnt that Star holds a 15% equity stake in IntJoors Sverige AB (Joors), which will launch the world’s first free high speed mobile Internet service in Sweden.

In a statement yesterday, MNC Wireless said it has, via its associate company Joors, initiated the launch of “Joors”, said to be the world’s first free broadband service.

“The shareholders of Joors make up some of the best minds in telecommunications, advertising and media in the Nordic and Asian regions,” it said, adding that Joor’s investors include Star.

According to the statement, the enabling technology and technical platforms for the Internet service was designed and developed by MNC Wireless, while the mobile broadband network is provided by TeliaSonera Mobile Networks AB, the largest telco in Sweden, on a wholesale basis.

MNC Wireless said users of the Internet service will need to pay a one-time start-up fee for registration and will be provided with free Internet access “for normal usage, for every 30 days at a speed up to 10 Mbps.” Users requiring more data capacity will have the option to purchase extra data at competitive prices.

The business model of Joors mobile broadband will be supported by advertising revenue.

This is the main reason Star is venturing into the project, says a source, who added that the move is to diversify the company’s earnings portfolio.

Media analysts said such a business model could be likened to the free newspaper model, in which the publishers do not make a profit from selling newspapers, but from advertisements.

When the number of subscribers to the free broadband service rises, it could be a tool to attract advertisers.

Since the change of guards in Star last year, the publication group seems to have adopted a more aggressive approach to diversify its media business.

Datuk Vincent Lee, who took over as executive deputy chairman last March, is also the largest shareholder of MNC Wireless with a 39.5% stake. Star made four acquisitions last year, which is rather aggressive considering the publishing group’s conservative approach of hoarding cash in the past.

Last month, it bought a 83.61% stake in publisher Red Tomato Media Sdn Bhd, which publishes a free Chinese weekly tabloid in the Klang Valley and Penang, for RM1.49 million. In the middle of last year, it acquired 51% of LI TV Holdings Ltd, which operates the Life Inspired lifestyle television channel, for RM35 million, and a 4.99% stake in Catcha Media Bhd, a magazine publisher and online media firm, for RM4.97 million.

The group also took up an 80% stake in radio station operator Capital FM Sdn Bhd for RM15 million.

Despite its diversification efforts, the company’s English daily, The Star, is still the bread winner.

For 9MFY11 ended Sept 30, print and new media accounted for 80% or RM611 million of Star’s revenue, followed by events and exhibitions 15%, while radio barely hit 5%.

Star has a cash pile of RM550 million compared to its borrowings of RM308.8 million.

The company’s net cash position would enable it to continue on its acquisition trail, although analysts noted that few of the acquisitions have so far given a major boost to Star’s earnings.


This article appeared in The Edge Financial Daily, January 18, 2012.



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Earnings volatility and dividend risk at Star

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


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



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Star buys up Red Tomato to strengthen position in Chinese media segment

KUALA LUMPUR: Star Publications (M) Bhd is strengthening its position in the Chinese publication segment by acquiring a controlling stake in Red Tomato Media Sdn Bhd, the publisher of a free weekly Chinese newspaper.

Yesterday Star, whose flagship publication is the English daily The Star, announced it had entered into a conditional share sale agreement with Red Tomato Media’s shareholders to acquire 83.61% equity interest.

The publishing company is paying RM1.49 million cash for the 83.61% stake of about 2.48 million Red Tomato shares. The deal values the entire privately held media company at RM1.78 million or 60 sen per share. Star is acquiring the stake in Red Tomato from the latter’s shareholders, namely its executive chairman and managing director Gan Chin Kew, Red Tomato CEO (management, operations, branding and marketing) Tang Swee Lan and Yew Chin Theng.

Gan will continue to hold a 9.66% stake in Red Tomato Media from the 38.63% stake he had earlier while Yew’s entire 54.63% stake in the company will be taken up by Star. Tang’s stake in Red Media meanwhile remains at about 6.73% after selling one share to Star.

“The investment provides Star with an immediate opportunity to enter into the Chinese print adex [advertising expenditure] market,” Star said in a filing with Bursa Malaysia yesterday.

Star added that Red Tomato will add synergy to its existing stable of media assets which will enable the group to leverage diverse multimedia offerings and identify new markets.

In a press statement, Star group managing director Ho Kay Tat said the acquisition of Red Tomato complements Star’s Chinese-language media assets including the Chinese radio station 988FM and monthly Chinese business magazine Shang Hai. Founded in 2008 by Chinese media industry veterans, Red Tomato Media publishes Red Tomato, a free weekly 24-page Chinese newspaper featuring economic and lifestyle content distributed in the Klang Valley and Penang on Fridays.

For FY10 ended June 30, Red Tomato posted a net loss of RM2 million on the back of RM1.82 million revenue, according to information filed with the Companies Commission of Malaysia.

As at June 30, 2010, Red Tomato Media had current liabilities of RM2.15 million, non-current liabilities of RM97,168 and total assets of RM940,035.

Among the conditions stipulated is that the vendors shall obtain the Ministry of Home Affair’s approval for the deal and secure the renewal of the printing permit for Red Tomato Biz Health and Beauty newspaper.

Star said its impending entry into the Chinese newspaper market is “very timely” given that the two major sporting events to be held next year are expected to provide a healthy boost to adex growth. The two sporting events are the UEFA European Cup 2012 and the London Olympics 2012.

Star said the investment in Red Tomato is expected to strengthen the group’s potential to improve its revenue streams and profit prospects.

Nevertheless, Star noted that the print media industry is facing intense competition from within the as well as from other media particularly the Internet and television, which are increasingly getting a bigger slice of the total adex pie.

Star’s latest venture forms part of the group’s plans to position itself as a multimedia group, diversifying from its traditional revenue base of print media.

In the past year, Star had been active on the acquisition trail. It recently picked up a 4.99% in stake in Catcha Media Bhd, a magazine publisher and online media firm.

Star also bought an 80% stake in radio station operator Capital FM Sdn Bhd and a 51% stake in Li TB Holdings Ltd, which operates the Life Inspired lifestyle television channel. Star’s shares yesterday fell one sen to RM3.20.


This article appeared in The Edge Financial Daily, December 2, 2011.



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Star Publications in line, but short on sparks

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.




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Softer advertising expenditure in September

Media sector
Maintain underweight
As expected, September’s gross advertising expenditure (adex) for TV and print media combined showed a sequential monthly contraction of 18.1%, following the bumper August adex (due to Hari Raya and Merdeka festivities), according to Nielsen Media Research (NMR). On year-on-year (y-o-y) basis, adex growth moderated to 5.1% in Septemebr (August: +9.7% y-o-y).

Print: Bearing in mind the ad rate hike effective January 2011, the print media showed positive y-o-y growth of 7% in September, although it has moderated (August: +14.1% y-o-y). On a month-on-month (m-o-m) basis, the print media contracted 21.2%, surprisingly due to the Malay dailies’ 37.5% m-o-m contraction. Prior to September, the Malay dailies’ adex growth has been quite strong since February, with a monthly sequential growth of 15.5%, compared with English (8.5%) and Chinese (5.8%) dailies.

Media Chinese International Ltd’s (MCIL) newspapers recorded stronger y-o-y numbers across the board, compared with other Chinese dailies. Star Publications (M) Bhd had a relatively decent month as adex grew 1.8% y-o-y (-7.1% m-o-m).

TV: TV adex in September moderated further since July with only 2.9% y-o-y growth (August: +4.4% y-o-y), mainly supported by strong numbers from TV3 and 8TV. Collectively, adex for Media Prima’s channels held up quite well with 8.6% y-o-y growth (-12.1% m-o-m). In comparison, TV1 and TV2 combined recorded -27.5% y-o-y growth (-26.5% m-o-m).


For the remainder of 2011, we expect adex growth to moderate further due to lack of festivities or big events and a high base effect in 4Q10. Looking at 2008 elections, a snap election before 2012 will have a positive though not significant impact on the 2011 adex. Also, global economic uncertainties have resulted in advertisers being more prudent on ad spend. Year to date, adex grew 11%. For now, we maintain our projected 2011 adex growth of 9%, and expect adex growth to slow down to 3.6% in 2012.

The risks include: 1) stronger-than-expected consumer spending and demand (and hence, adex), possibly due to a faster-than-expected recovery in the global economy, among others; 2) lower-than-expected newsprint/content costs; and 3) stronger-than-expected ringgit vs the US dollar.

No change to our earnings forecasts. Maintain “underweight” on the sector. We believe the sector lacks catalysts as adex growth may weaken further if a double-dip global economic recession materialises. Historically, we note that the GDP multiplier effect on adex growth weakens (potentially deteriorating by as much as half) when GDP growth softens. — RHB Research, Oct 31


This article appeared in The Edge Financial Daily, November 1, 2011.