We attended STAR’s post-3Q13 results briefing yesterday. The key highlights of the briefing focused on: (i) the company’s dividend, (ii) adex outlook, and (iii) the upcoming regional e-paper bundled service. STAR is reiterating its intentions to maintain an annual DPS of 18.0 sen should the group manage to achieve its internal targets. Meanwhile, STAR is optimistic on its upcoming regional epaper bundle service, which could provide a new income source for its adex revenue in the next 3-5 years, if successful. On top of that, STAR will start to streamline its work-force in FY14 but is expecting to save RM20m p.a. post the reorganization. There are no changes in our FY13 numbers but we slash FY14 earnings estimate by 19% after imputing the VSS cost into our financial model. Meanwhile, we also introduce our FY15E numbers where we expect earnings to normalised and record a net profit of RM149m. Our target price for STAR has been cut to RM2.00 (from RM2.48 previously) based on an unchanged targeted FY14 PER of 13.2x (-1.5x SD). Downgraded to UNDERPERFORM.

Dividend expectation remains unchanged. Despite a challenging operating environment, STAR is still aiming to maintain its full-year DPS of 18.0 sen (as in FY12) in FY13. A part of the EPS internal target, STAR had also previously guided that the ability to reward shareholder will rely on the capability of the group to achieve other internal targets such as (i) PBT of RM180m in FY13 (9M13: RM132m) and (ii) to record lower losses of less than SGD5m (9M13: ~SGD1.8m) in its event management division. Following the slight earnings upward revision post the 9M13 result and to align with management latest guidance, we have raised our FY13 DPS estimate to 18.0 sen (from 15.0 sen previously), translating into a 7.3% dividend yield.

Regional e-paper bundled service targeted to be unveiled in 1Q14. STAR is expecting its e-paper subscribers to reach 60k by year-end, up from about 50k e-readers recorded in March. To further leverage on its digital print media platform, the group has tied-up with few regional media players such as (The Nation (Bangkok daily English newspaper), Jakarta Post and Philippine Daily Inquirer) and targeting to launch its maiden e-paper regional bundled service in 1Q14. By paying USD115 p.a. to subscribe the e-paper services, a Star reader is not only able to read the local news but also the regional news through its regional partners. No financial guidance was provided, but management believes the services could attract regional players (i.e. airlines and banks) and thus provide rooms for adex to growth going forward.

Gloomy adex outlook. Management concurred that the adex outlook for 2014 is challenging in view of the on-going government subsidise rationalisation plan which could dent consumer sentiment. Despite an expected eventful year in 2014 (visit Malaysia and 2014 FIFA World Cup), management expects adex to grow by a mid-to-low single digit. Focus will be on the property and tourism segments adex spending which management believes could be riding on the current market trend. To further attract property adex spending, STAR is planning to organize a property award in 2014 to draw developers’ interest.

Implementing cost-cutting measure in 2014. The group’s net profit was lower by 11% YoY to RM99m in 9M13, no thanks to the sluggish adex revenue and the persisting high administrative costs led by high wages. To improve its efficiency, STAR will implement a voluntary separation scheme (VSS) by streamlining its work force (which will cost c. RM38m) in FY14 and targeting to save RM20m annual operating expenses post the reorganization.

Source: Kenanga