We hosted a meeting with the management of Star recently to get updates on the Group's business strategy moving forward. The Group was represented by Mr Calvin Kan (Group COO), Mr Ragesh Rajendran (Group CFO)and Roy Tan (COO, Digital Business). Key takeaways: Star will continue to focus on increasing revenue streams from its multiple platforms whilst strengthening its print segment to weather near to mid-term challenges due to soft adex environment arising from cautious consumers and business sentiments. Despite the challenges affecting the media industry as a whole, we continue to like Star for its strong net cash, high dividend yield and entrenched positionin the English daily segment while also being optimistic over its growing digitization. We reiterate our Outperform call on Star with a TP of RM2.78.

Cover price hike? Management acknowledged the mounting cost pressure arising from the strengthening of USD against RM, therefore neutralising the Group's cost saving effort, among others shifting to 42gsm initiative. Management has not decided to increase the cover price for now though does not rule out the possibility. We believe Star's circulation number will not be affected much should there be cover price hike due to its leading position in the English daily segment and the fact that its competitor had increased the cover price for its daily and Sunday editions from RM1.20 and RM1.50 to RM1.50 and RM1.80 respectively effective 1 January 2015. Star's cover price remains at RM1.20 and RM1.50 for its daily and Sunday editions.

Near to mid-term strategies. (i) Synergistic acquisition. Based on the strong net cash of RM354m (48sen per share) as at 3QFY14, the Group is continuously looking for synergistic expansion opportunities, especially in digital media and other businesses which could add value to the Group. We sense management is very cautious in acquiring new business after experiencing difficulties in turning around loss-making start-ups acquisitions previously. (ii) Events. Besides Perfect Livin' which plans for 15 to 16 exhibitions this year, the Group also plansto double its StarProperty.my and Star Education fairs from 2 each last year to 5 and 4 respectively for this year. (iii) Advertising rights on 16,000 school buses in Peninsular Malaysia. The Group has clinched its first client, i-City to advertise on 30 school buses. The whole bus would be creatively transformed in order to attract school-going children. Management is projecting RM1m –RM2m contribution to the bottom line from this segment for this year. (iv) Potential rental income. There will be potential rental income of RM7m per annum(based on 80% occupancy)from its new 13-storey office tower, known as Star Tower with a net lettable area (NLA) of approximately 220,000 sq ft. The Group expects to lease out the office space from 3QFY16.

Dividend. Management is likely to pay dividend of 15sen –18sen for FY14 and trying to maintain the same quantum for FY15 depending on the Group's satisfactory performance, translating to an attractive dividend yield of 6.2%.

Source: PublicInvest Research - 19 Jan 2015