Star Publications -
Share price: MYR2.46
Target price: MYR2.65 (from MYR2.41)
Worst Over But Outlook Still Guarded
Maintain HOLD with a higher TP of MYR2.65 (+10%). Star attributed its improved 3Q13 results largely to lower newsprint consumption and prices. Going forward, it will save MYR20m p.a. from rationalising its staff. We raise our FY14/FY15 earnings estimates by 8%/12% and excash DCF-based TP by 10% to MYR2.65 to reflect this. We also raise our yearly DPS estimate by 25% to 15sen. Dividend yields of >6% should limit downside risk to its share price for now. Maintain HOLD.
Cost cutting saved the day. We attended Star's 3Q13 results briefing yesterday, hosted by Datuk Seri Wong Chun Wai (ED and Group Chief Editor), Mr. Calvin Kan (EVP Print Business) and Mr. Ragesh Ragendran (Group CFO). 3Q13 core net profit of MYR44m surged 28% YoY due to lower newsprint consumption (from 60k tonnes in 3Q12 to 55k tonnes in 3Q13 on an annualised basis), lower average newsprint prices (3Q12: MYR700/tonne, 3Q13: MYR650/tonne) and a turnaround at 64%-owned Cityneon, which posted an EBITDA of SGD0.7m.
VSS to save another MYR20m p.a. but outlook still guarded. 259 employees have accepted the voluntary separation scheme (VSS), which will commence from Jan 2014. Star will incur a one-off VSS expense of MYR38m but save MYR20m p.a. in staff costs going forward. On its overall outlook, Star is confident that Cityneon will break even this year due to a SGD25m Shanghai Disneyland contract, but is rightly cautious that potential electricity tariff hikes and the GST implementation on 1 Apr 2015 could negatively impact adex sentiment.
9sen DPS likely to repeat in 2H13. Our forecasts reflect the lower newsprint consumption and prices but not the staff cost savings. Therefore, we raise our FY14/FY15 earnings estimates by 8%/12% (exone- off MYR38m VSS charge). The impact will be greatest in FY15, which will see a full year of the lower staff costs. Meanwhile, our estimates imply that Star will earn another 6sen EPS in 4Q13 bringing 2H13 EPS to 12sen (1H13: 7.5sen). We believe that the earnings recovery will see Star return to paying 9sen DPS (+0% YoY, +50% HoH) or 75% DPR in 2H13. As such, we raise our yearly DPS estimate from 12sen to 15sen.
Publish date: 27/11/13