By Chan Quan Min
Investors typically hold Star Publications for its generous dividends but they also fear the media group is not able to adapt quickly enough to the changing media landscape. But what if you could now pick up the stock cheaply after the recent stock market retreat?
Business model: Star Publications Bhd, a large media conglomerate today, has humble beginnings. Its flagship publication, The Star, started life as a Penang-based newspaper on Sept 9, 1971. Shortly after The Star went national in 1977, the Malaysian Chinese Association (MCA), which is a component party of Barisan Nasional, took ownership of the paper.
In the years since, The Star has grown to be the widest read English-language daily. Aside from the newspaper, Star Publications now owns magazines, online newspapers and classifieds, radio stations, a television station and event planning companies.
Only The Star and subsidiary companies Perfect Livin and Cityneon report consistent profits. Perfect Livin organises home renovation and lifestyle exhibitions while City Neon is Singapore-based service provider for large-scale trade shows and similar events.
Shareholders and management: The MCA holds the largest chunk of shares with a 42.5% stake in Star Publications followed by Permodalan Nasional Bhd (PNB) fund with 8.5%. Aberdeen Asset Management is also a major shareholder with a 7% equity stake.
The group managing director and CEO of Star Publications since November 2013 is Wong Chun Wai. He took over from Vincent Lee Fook Long following a change of leadership at MCA. The chief executive at Star Publications is often seen as a political appointment.
Fong Chan Onn, a former Minister of Human Resources, is the chairman and non-executive director of the company. The acting group chief editor is Leanne Goh Lee Yen, who is in charge of the general editorial direction of the media group’s publications.
Share performance: Star Publications is now trading at RM2.34 per share, just coming out of a nine-month low. The share price started the year at about the RM2.20 mark, touched a high of RM2.80 in late August before tracing lower in line with the FBM KLCI.
Dividend policy: Star Publications does not have an official dividend policy but has consistently paid out about 60% of earnings in dividends. In 2012, shareholders got a total of 18 sen per share while in 2013 the dividend payout was lower at 15 sen per share. The dividend payout in 2014 could be up to 18 sen.
What analysts think: Analysts see little to look forward to in the immediate future for Star Publications as industry advertising expenditure looks likely to weaken on inflation concerns.
“Although the decline in print circulation is bottoming, we see that the trend is still negative for the print segment given the structural shift in advertising expenditure,” CIMB Research noted.
According to CIMB, Star Publications should look towards growing its digital platform in order to “stay relevant”. Additionally, the research house recommends focusing on property, automotive and jobs classified websites, which has proven to be revenue generating.
However, CIMB advises investors to “stay invested for an attractive 2014 dividend yield of 7.9%”.
Like CIMB, Maybank Research is promoting the stock for its dividend yield, which has become even more “enticing” after the recent share price fall.
“Since early this month, Star’s share price has tumbled 11%. Given that we estimate that Star can still pay 18 sen per annum dividend per share, we opine that the share price reaction may have been overdone.
“With 15% upside potential and 7.8% pa dividend yields, we upgrade Star to ‘buy’,” said Maybank.
The research house also noted that the Asian Financial Crisis trough valuation of Star Publications was 1.4 times price-to-book value, therefore “downside risk appears limited at 1.5 times price-to-book value currently”.
Some analysts pointed out that the media group’s move to diversify revenue sources may be bearing fruit as the event planning and management division has grown to be the second largest revenue contributor.
According to Kenanga Research, the event planning and management division “remains a wildcard to the group’s earnings”.
TA Securities, meanwhile, believes Star Publications has taken the right “cost control measures to preserve margin” including switching to a different newsprint to effect a 4% cost saving, closing the Sarawak edition and ceasing publication of loss-making magazines.
Earnings forecast:
StockStalk: Now is a good a time as any to review investment portfolios given the stock market retreat led by oil and gas counters followed by bank counters.
Oil and gas stocks may look cheap after falling in value by about 40% to 60% but they are jittery investments given that globally traded crude oil prices have not stabilised.
Investors looking to exercise caution might turn to defensive stocks and Star Publications is one of them, on account of its regular dividend payments.
Before jumping in, it pays to know that Star Publications is going through an internal restructuring that began early this year with a voluntary separation scheme to reduce staff count.
“We’re not Hull or West Ham. We don’t spend money unnecessarily,” group managing director and CEO Wong Chun Wai said during a staff meeting recently.
The meeting was followed by an employment freeze and other moves to cut costs. Wong’s actions show he is determined to maintain the profitability of the paper given that current sources of revenue appear to be spent while new sources of revenue have proven to be unreliable.
Star Publications move to diversify into areas other than its flagship newspaper has had mixed success. Two acquisitions, Perfect Livin and Cityneon, now give a stream of consistent income. The same cannot be said of LiTV, short for Life Inspired TV, which is loss-making and is known in the industry to be extravagant in their spending.
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Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KiniBiz makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
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