Published October 20, 2009

Analysts rerate Star as best proxy to recovery

By S JAYASANKARAN
IN KUALA LUMPUR

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STAR Publications, the publisher of the most popular English newspaper in Malaysia, is being rerated by analysts as the best proxy to a recovering Malaysian economy in 2010.

Ad chunk: The Star commands more than 70 per cent of the English newspaper ad expenditure segment

The Star, whose eponymously named English paper sells around 300,000 daily, commands more than 70 per cent in the English newspaper adex (advertising expenditure) segment, the largest of the entire advertising cake.

Its share price had dropped sharply - to RM3.32 currently from its towering heights of RM8 - on fears of gloomy consumer sentiment because of the recession.

The reassessment of Star Publications illustrates the growing confidence among economists and analysts alike of the recovering global economy and its knock-on effects on Malaysia. It has also been reinforced by optimistic statements from both the Finance Ministry and the central bank amid similar reratings of other stocks that act as proxy to Malaysian growth in gross domestic product - the banks, for example.

The publisher made a net profit of RM139 million (S$57.3 million) for the year to end-December 2008, down from the RM169 million it made for the preceding year. This year it is expected to fare even worse with net profit forecast by AmResearch to fall to RM 112 million. But looking ahead, a confluence of positives is looming for the firm catalysed, ironically, by the doom and gloom affecting the traditional global media.

For one thing, newsprint prices have dropped sharply because of depressed demand worldwide and the closure of several US newspapers. Currently, newsprint prices are at US$462 a tonne from a peak of US$758 a tonne in December 2008. Analysts said that this would improve margins at the publisher, a reality that will be aided further by the ringgit's continued appreciation against the US dollar.

In addition, the media firm - it also has English and Chinese magazines, a radio station and an online Malay newspaper - has a healthy balance sheet with cash reserves of RM376 million.

In a recent report, AmRsearch expects the firm to increase dividend payouts to 24 sen/share next year from 18 sen in 2009. At its current price, that translates into yields of 6-7 per cent against bank deposits of around 2 per cent.

For next year, the securities house estimates earning to rise 50 per cent to RM170 million on lower newsprint costs and adex rising by 9 per cent. The report called a 'buy' on the stock - from a previous 'sell' recommendation - and a target price of RM4 for the share.