By Lawrence Yong
Analysts were mixed on the prospects of Star Publications (M) Bhd after the high-dividend paying company posted its seventh straight quarter of lower year-on-year earnings with no help seen from its new media ventures.
A few analysts have cut their target price for Star after the company reported a 22% fall in net profits in 1Q13. A survey showed that most analysts from banks set their target prices for Star at between RM2.65 and RM2.92, just above the share’s recent trading levels on Bursa Malaysia at RM2.40 to RM2.60.
The company’s shares have fallen by about 20% this year.
“Star expects its print advertisement expenditure (adex) to recover post-13GE but we are unsure if it will grow meaningfully year-on-year,” Maybank IB research noted.
The company which is almost 80% reliant on its print business for revenue was looking to diversify into digital platforms and start-up other media-related businesses but have so far not reaped convincing returns beyond its main product, the Star newspaper.
Its print segment-driven profits were dragged down by losses in exhibition companies, radio and TV channels. Star said that it expects its Singapore-listed subsidiary Cityneon Holdings, an exhibition and event company, to turn a profit in FY13. An analyst from AMBank Research however said that Star would need to divest Cityneon once it becomes profitable, to free up cash for new ventures into digital platforms. Star bought Cityneon in 2008.
It’s TV venture – Li TV Holdings – also posted a huge RM2 million loss in the first quarter due to marketing costs. The management expects Li TV to break even in FY14, analysts noted.
TA Securities research noted concerns about newspaper sales in Malaysia.
“Going forward, the environment could remain less encouraging forStar as readership growth for English newspapers remains tepid and adex share for newspapers is expected to continue to decline gradually,” it said.
TA said that it has cut its earnings forecast for Star for FY13-FY15 by 9.9% to 11.9% and recommended investors to sell shares in the company, after lowering its target price to RM2.72 from RM3.04.
CIMB Bank research cut its target price to RM2.92 from RM3.37 as it expected the media sector to grow less than the market because of a shift from print to digital. At the lower target price, it expects Star may outperform.
Analysts said some factors could help Star maintain decent earnings.
Earnings “should still be decent given the lower newsprint price, which has dropped to US$600-US$620/tonne now, compared to US$675-US$720/tonne in 2011,” Alliance Research said. Star was expected to start replenishing its newsprint stockpile in the 2Q13.
Alliance also noted that Star offers an attractive net dividend yield of 7%, which is sustainable and backed by its strong cash position of RM174 million, or 23.7sen/share. For the first quarter however, Star did not declare any dividends.
Analysts said that Star’s price to earnings (PE) ratio at 12 times, is at parity with its peer Media Prima Bhd. and is higher than the 10 times PE for Media Chinese International Ltd. (MCIL).
Star’s management was due to brief analysts further about the company on Thursday.
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