By Khairul Khalid
Media conglomerate Star Publications is diversifying beyond its bread-and-butter print business that remains its cash cow. Will it be able to replicate its success in other non-traditional media segments?
Business model: On May 19, Star Publications (M) Bhd posted a core net profit of RM26.5 million for the first quarter of financial year 2015 (1Q15). It was up 3% year-on-year (y-o-y) but represented a huge 44% drop quarter-on-quarter (q-o-q).
Star Publications plans to grow its digital revenue and reduce dependency on its traditional print business.
It is targeting to launch its Audience Interest Marketing service in June 2015 to connect advertisers directly with their target markets. It also rolled out a new Star Mobile app that allows readers to watch news video clips.
In April, it proposed to acquire the entire stake in Victory Hill Exhibitions Pte Ltd (VHE) worth S$21 million (RM56.58 million). Star said its 64.1%-owned Singapore-listed unit, Cityneon Holdings Ltd, will acquire the Singapore-based VHE from Philadelphia Investments Pte Ltd.
Cityneon, a Singapore-based company listed on the Singapore Stock Exchange, operates in four business segments, namely interior architecture, exhibitions, experiential environment, and events businesses.
VHE, an exhibition services provider, entered into a licence agreement with Marvel Characters BV for the rights to provide exhibition services for Marvel. The deal is expected to be completed in the third quarter of 2015 (3Q15).
Star Publications is a big media conglomerate but it 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, MCA 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 TV 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 a Singapore-based service provider for large-scale trade shows and similar events.
Shareholders and management: According to a TA Securities report, Star Publications’ biggest shareholder is MCA with a 42.46% stake. MCA is a component party of the ruling BN coalition.
Other significant shareholders include Skim Amanah Saham Bumiputera (9.89%), Lembaga Tabung Haji (6.77%), Amanahraya (6.72%), Aberdeen (5.39%), and Great Eastern Life Insurance (5.07%). The company has a market capitalisation of an estimated RM1.7 billion.
Star Publications is led by Wong Chun Wai, its group managing director and chief executive officer (CEO) since November 2013. Wong replaced the previous CEO Vincent Lee Fook Long following a leadership change in MCA. The top post at Star Publications is often regarded as a political appointment.
Fu Ah Kiow was appointed as an independent non-executive director of Star Publications on Feb 27, 2014 and redesignated as the chairman of Star Publications on May 21, 2014. He was a deputy minister in several ministries before retiring in 2008. Leanne Goh Lee Yen is the acting group chief editor for the company’s various publications.
Share performance: 
What analysts think: Most analysts said that the 1Q15 results were within expectations.
“First quarter is a seasonally weak quarter as advertisers finalise their marketing and advertising budgets and negotiate for new advertisement rates. For the past five years, Star Publications’ 1Q bottom line made up between 12% and 22% of full-year net profit,” said a TA Securities analyst report.
AmResearch analysts said that despite Star Publications’ positive initiatives to diversify its business, they are unlikely to contribute significantly to its bottom line anytime soon.
“We estimate that print and digital will continue to be the cash cow of Star Publications — contributing more than 90% of earnings in the near term. We remain cautious on its outlook for the rest of the year given the current weak consumer sentiment,” said AmResearch.
Maybank added that 1Q15 print and new media revenue was flat y-o-y because the 1Q14 base for Star Publications was low due to the Malaysian Airlines’ (MAS) MH370 tragedy.
“Core pre-tax profit grew 29% y-o-y due to staff cost savings from the voluntary separation scheme exercise, right-sizing of its Sarawakian operations, and discontinuation of the executive deputy chairman position.
“Core net profit grew by a slower 3% y-o-y due to a high tax rate of 36% as a result of non-deductibility of losses at 64%-owned Cityneon,” said Maybank.
Maybank also felt that the recent implementation of goods and services tax (GST) might adversely affect consumer and advertising expenditure (adex) sentiment.
“We leave our earnings estimates, which assume 5% y-o-y contraction in print adex in 2015, unchanged for now, but note that there might be downside risk to our earnings if post-GST print adex falls more than our estimate,” said Maybank.
Earnings forecast:
StockStalk: Despite its forays into other business segments such as events and exhibitions, Star Publications is still very reliant on its print and digital business which accounts for approximately 75% of the group’s total revenue and 90% of earnings.
Thus, it is still heavily dependent on advertising revenue. Unfortunately, the GST effect is starting to bite on consumer spending with cautious sentiments prevailing.
Many are expecting the consumer market to be sluggish for the rest of the year as the public struggles to adjust to the new tax.
A weak adex outlook looms as many big advertisers in media such as telcos and fast-moving consumer goods companies are experiencing slowdowns themselves. This will have a direct impact on adex and Star’s revenue.
On the other hand, potential investors may view Star Publications’ diversification as a strategy that may yet pay off in the long run. Its shares are also an attractive dividend play, which currently yield approximately 6%.
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