Star Publications
(Malaysia) Bhd (Feb 4, RM3.20)
Maintain hold at RM3.20, target price at RM3.36: The Malaysian Insider reported that Star would launch a Malay language newspaper to be known as Mingguan Star by the end of the month. It would be distributed free with every copy of The Sunday Star.

Initially, some 160,000 copies would be printed weekly and distributed only in the Klang Valley. News of Star venturing into Malay newspapers is not new and has been circulating in the media industry for a few years.

Star intends to replicate the success of Malay tabloids, Harian Metro (338,552 daily circulation) and Kosmo (129,633 daily circulation). It is interesting that Harian Metro is now the second-most read newspaper in Malaysia and its daily circulation even surpassed that of The Star at 295,479.

That said, we understand that it would be a lifestyle newspaper as it would be hard to convince reputable companies to advertise in tabloids.

We understand that this launch is merely a trial run in that if Mingguan Star is well received, it would be sold separately in the future. A good analogy would be how Personal Money was once distributed free with The Edge, and is now successful enough to be sold as a separate product.

As it is initially free, the potential losers are NSTP’s Harian Metro (RM1.50 per copy) and Utusan’s Kosmo (RM1 per copy). As Mingguan Star is initially free, Star would not earn circulation revenue.

Also, it remains to be seen how well it would be received by advertisers. Thus, adex revenue visibility is unclear.

Newsprint consumption is not expected to exceed our 70,000 tonne per annum assumption as it will be printed only weekly and only 24 pages thick. Newsprint consumption can also be reallocated from The Sunday Star to Mingguan Star.

Our RM3.36 target price implies 15 times 2011F price-to-earnings (PE) which is only one time below the 12-year average one-year forward PE of 16 times.

While we view this expansion positively, it still does not address the issue of Star’s largely idle net cash pile which we estimate would burgeon to almost RM400 million (54 sen/share) by year-end. Maintain hold. — ECM Libra Investment Research, Feb 4
This article appeared in The Edge Financial Daily, February 5, 2010.