By Lawrence Yong
In the third part of our series we look at Star’s efforts to thrive in the hyper-trendy online space. Star has also been buying into everything from property websites to radio stations and exhibition companies although its main cash cow still is The Star newspaper. The Star sparkled in the mainstream print media but can it achieve the same level of success in the digital realm?
The top dog may now again be an underdog. The tables seem to be turned on The Star Publications (M) Bhd, if analysts are asked to ponder the digital future of the publisher of Malaysia’s leading English daily. It has embarked on a move to migrate readers from print to digital platforms to arrest falling profits but the jury is out on whether the company can transform fast enough to drive future earnings up.
Analysts agree that the company has very much less than two decades, the time it took for the paper to rise from an underdog to become Malaysia’s leading English newspaper. Can it thrive in the hyper-trendy online space as well as it has in the mainstream and will advertisers follow?
On this front, most analysts said the company has underperformed, pointing to a near 20% slump in its share price last year, from which it is still striving to recover. Its share price, which rarely strayed from the RM3-RM3.40 range in 2011-2012, slid from November onwards to an all-time low of RM2.35 on May 2 before recovering. Star’s shares were trading at RM2.85 on Thursday.
“The Star has been too slow to react as the online media and TV have siphoned their advertising expenditures (adex) away over the last one to two years,” one industry analyst said. The evolving and crowded Malaysian media landscape, dogged by patronage, stringent government controls, fickle reader support and pluralism makes bank-backed equity analysts unsure about valuing The Star’s stock.
Who can fairly measure how much of a fan base The Star really has?
On record, The Star has a circulation of 290,000-300,000 copies a day which makes it the most bought English-language newspaper in Malaysia, far surpassing the 100,000 copies a day sale of its arch-rival News Strait Times. Only The Sun, a free tabloid, has close to Star’s circulation, according to Malaysia’s Audit Bureau of Circulation. However, that data only covers the period up to June 2012.
Much has changed in a year, especially post 13th GE which ushered in a nationwide call for democracy and along with it, press freedom, on a scale unseen since Barisan Nasional (BN), won Malaysia’s independence from the British in 1957.
“Their readership is predominantly in the urban areas, and in these areas, people are becoming more technology-savvy… so they need to revamp to secure readers who are now using hand phones and tablets to look for news,” said Jarod Soon, an analyst with Hong Leong Investment Bank (HLIB) Research.
Star’s true readership figures are closely held. In December, an analyst report from OSK Research (now part of RHB Capital) inferred from falling print advertisement spending that the Star’s readership was on the decline. “Star Publications is a ‘sell’ given that its printing business is facing a decline in English readership while its newly acquired businesses are still in their gestation,” it noted.
This report immediately came under fire. In a statement to Bernama news, Star’s executive deputy chairman Vincent Lee took issue, calling the report “inaccurate, unprofessional and badly researched.” The Star has refused to work with RHB analysts since, industry sources said.
Vincent Lee
Lee put up a Nielsen Consumer and Media View report for the second quarter of 2012 to say that Star’s readership was up 21% to 1.8 million, from 1.5 million in 2011.
Analysts were however puzzled why advertisers would flee from the English print media if readership was actually up. In its latest report for May, Nielsen media research said English newspapers reported the sharpest fall of 11.4% in advertisement expenditure over the same period last year. This brings the first five months of adex to RM622 million, 5% lower than Jan-May 2012.
English print media, which comprised about half the market share of print adex, suffered worse than Chinese-language and Malay-language newspapers.
To its credit, the Star has taken measures to address readers’ complaints and reacted to shareholder feedback, many of which surfaced in its recent 41st AGM. Past employees and minority shareholders took turns throwing brickbats at management for losing employees and its lopsided election coverage.
Since taking the reins in 2010, deputy chairman Vincent Lee, an advertising veteran, has acquired several side projects to manage — four local radio stations, the online LiTV channel and an exhibition company, Cityneon Ltd — which Star has said held much promise for the future. However, they are not expected to break even for at least one to two more years. In May, Star also launched a RM20 million ‘Accelerator Fund’ aimed at sussing out technopreneur start-ups.
However, at its core, Star remains an old business in dire need of new measures. Some 80% of Star’s revenue is still derived from its print segment and much of it through advertising revenue generated from The Star.
It’s net profits fell 22% in 1Q13, for seven straight quarters of lower year-on-year earnings.
Excluding RM90 million extraordinary gains from a property sale, Star’s full year 2012, group pre-tax profit amounted to RM169.6 million, nearly a third down from the RM250.5 million reported for 2011, reflecting a major downturn in its core newspaper business.
Part of it may be due to a higher costs burden as Star spent RM40 million to upgrade its news printing machinery in December last year. This would result in minimising wastage and ultimately lead to improved efficiency and lower printing costs. Newsprint prices were also falling but Star may not benefit, having stocked 16 months in advance.
“We understand current that the newsprint price remains at about US$600/tonne, while the average cost for Star’s inventory is US$650/tonne,” Alliance Research’s Toh Woo Kim wrote in a report recently.
On this front, it seems, it can do nothing more than stem losses.
To address its loss of classified advertisements, which may account for up to 30% of its total advertisements, the company paid RM13.5 million to buy into three online portals — propwall.com, ibilik.com and carsifu.com — owned by privately-owned Ocision. This former two portals are among the leading property websites in Malaysia.
Roshan Thiran
The company also roped in Roshan Thiran, a ex-corporate climber turned self-proclaimed motivational guru and social entrepreneur. As CEO of Leaderonomics, which he founded, Roshan’s stated aim is to impart corporate leadership skills to youths and young adults.
In a profile published in 2009, the Star reports that Roshan draws qualities from a diverse range of people, from Mother Teresa to Jack Welch, from Thomas Edison to Sir Winston Churchill, to teach the importance of leading and learning. “He is one who likes to vacuum everything in the brains of those he finds worthy, ” the Star’s profile said.
As the new director of operations, he fills the managerial vacuum left by the previous managing director Ho Kay Tat, who was a career journalist. Ho is now the group chief executive of Edge media group.
Still in his 30s, analysts said that the ambitious Roshan may be the right choice to ‘scale up’ Star’s online ambitions and attempt to reach younger readers. Apart from having tied up 50,000 subscribers for its e-newspaper to its print subscription, the company has yet to monetize much of its sprawling online presence, including myStarjobs, Starproperty, TheStar.com and Starmotoring.
Analysts said that the Star’s future looked bright if it could leverage on its 40-years of covering Malaysian news into a series of highly scalable and fairly cheap-to-start online businesses.
“Management talked about the initiatives it is taking to revitalise the print business as well as grow its digital business,” said Alliance Research’s Toh Woo Kim, who recently recommended investors buy Star stocks, at a revised target price of RM3.14.
“Breaking news will be reported on a timely basis by its online portal, while its bread-and-butter newspaper will focus on providing detailed analysis/commentary as well as be involved more in investigative journalism, ” Toh said.
However, this would not be an easy move as other media — The Malaysian Insider and Malaysiakini.com — have already cornered the online news market for awhile with their own individual niches. Star’s print competitor, The Malay Mail is also going online. But this is an infinite space. According to a social media survey, Malaysia already has 13 million users on Facebook, nearly half its population. Do they really need more general news?
In the final analysis, investors mostly hold Star up as a good dividend-paying stock, after lowering their target prices for the company.
Alliance’s Toh noted that Star should be able to pay an 18 sen/year dividend, which would yield about 6.4% in returns at the current share price, sustainable by strong operating cashflow and net cash position of RM174 million, or 23.7sen/share. This compares to a 4.5% to 5.5% yield from its peers such as Media Prima and Media Chinese International Ltd (MCIL).
“We are positive on the Star’s plan to remain relevant in the ever changing media landscape. However in the intermediate term, we see its earnings being impacted by the gestation period of new business ventures and cost optimisation plan,” HLIB’s Soon said in a report issued last week.
How long can The Star stay ‘lacklustre’ without losing its shine?
Tomorrow: What The Star needs to do going forward
Yesterday: Are the fortunes of The Star falling?
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