Star Publications (Malaysia) -
Hold (from Sell)
Share price: MYR2.52
Target price: MYR2.41 (from MYR2.12)
End to Eight Quarters of Contraction
Finally achieving positive turnaround? Star’s results were above our expectations, largely due to cost rationalisation. We therefore raise our earnings estimates by 15-16% for FY13-15. In the same vein, we upgrade Star from SELL to HOLD on a new DCF-based TP of RM2.41 (+14%). As this upgrade is solely predicated on cost rationalisation, and there is still earnings risk from the GST implementation and further subsidy cuts, we still see no reason to buy Star. The company will host a results briefing on 26 Nov 2013 and we will obtain more updates then.
Above expectations. 3Q13 net profit of MYR44m (+28% YoY, +54% QoQ) brought 9M13 core net profit to MYR98.7m (-11% YoY), above expectations at 81% of our full-year estimate. That said, 9M13 revenue of MYR736.2m (-6% YoY) was within expectations at 68% of our 2013 estimate (historical range: 65-75%). We note that the outperformance was due to cost rationalisation at the print segment.
Improved financials. 3Q13 net profit surged 28% YoY, although revenue grew only 3% YoY on higher contributions/narrower losses at every segment, driven by higher revenue at Cityneon and Li TV and lower expenses at print and radio. While 3Q13 print revenue was down 3% YoY, it was an improvement from 2Q13 print revenue, which was down 10% YoY. Print contributed 90% to group EBITDA in 2012.
Raising earnings estimates by 15-16%. Instead of assuming MYR10m expense inflation at the print segment for FY13, we now assume MYR15m expense rationalisation, since we estimate annualised 9M13 print expense to be down MYR15-18m YoY. We also understand that Star will embark on a voluntary separation scheme from Jan 2014, further rationalising operating costs.
Upgrade to HOLD and raise TP to MYR2.41 but still not a buy. Following our raised earnings estimates, we raise our ex-net cash DCFbased TP to MYR2.41. As this upgrade is solely predicated on cost rationalisation, and there is still earnings risk from the 20sen/litre fuel price hike on 3 Sep 2013, GST implementation on 1 Apr 2015 and further subsidy rationalisation, we still see no reason to buy Star.