Star- losing its shine

Result Update

For QE30/9/2012, Star's net profit dropped 23% q-o-q or 16% y-o-y to RM34 million while revenue was mixed, dropped 14% q-o-q but rose 5% y-o-y to RM256 million. Overall, the drop in bottom-line was attributed to higher operating expenses and finance cost.

Star's businesses are grouped into 4 divisions:

• Print & New Media
• Radio Broadcasting
• Event, Exhibition, Interior & Thematic
• Television Channel

Radio Broadcasting & Television Channel divisions are relatively small & they are incurred small losses for QE30/9/2012. Event, Exhibition, Interior & Thematic division is spearheaded by two companies- Cityneon and I.Star. For QE30/9/2012, Cityneon  incurred a loss before tax of RM1.73 million, due to higher operating expenses. I.Star reported a pre-tax profit of RM4.0 million due to the successof its Home & Lifestyle Exhibition held in Putra World Trade Center, KL & Penang.

The main division, Print & New Media reported a y-o-y decline in pre-tax profit from RM58.1 million to RM50.9 million. This was contributed by both the Print sub-division & the New Media sub-division as their revenue dropped 2.7% & 11.0% y-o-y, respectively. The decline in revenue was due to lower advertizing received.


Table: Star's last 8 quarterly results


Chart 1: Star's last 22 quarterly results

Financial Position

Star's financial position as at 30/9/2012 is deemed very healthy. Its current ratio stood at 3.0 times while its gearing ratio stood at only 0.25 time. Its has cash & FDs totaling RM494 million. If we deduct the borrowings of RM264 million, the net cash reserve is equivalent to 31 sen per share.

Valuation

Star (closed at RM2.59 yesterday) is now trading at a PE of 11.9 times (based on last 4 quarters' EPS of 21.85 sen). For a well-managed media company, this PE multiple is deemed very reasonable- even fairly attractive. 

Technical Outlook

Star's recent price decline followed swiftly after the stock broke its uptrend line at RM3.00. It has also broken below its horizontal line at RM2.65. Its next support will be the horizontal line at RM2.55 & definitely the psychological support at RM2.50.


Chart 2: Star's weekly chart as at Dec 20, 2012 (Source: Quickcharts)

Conclusion

Despite poorer financial performance & negative technical outlook, Star is a stock worth considering for long-term investment. Its valuation is fairly reasonable and, being the premier English newspaper in Malaysia, it would benefit from any upturn in economic activity.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Star.