Star - earning disappointment

Its disappointing set of earnings resorted to management cutting its interim dividend per share to six sen from its usual nine sen. This is likely the key reason behind its dock price underperformance over the past three weeks prior to 11 Sept 2013.

The probability of the price overshooting the downside appears high given its weak fundamentals and DPS cut, which has also advertently sparked off a selling spree by its major shareholders … Aberdeen Asset ceased to be a major shareholder.

However the management has guided that FY2013 DP would be restored to 18 sen should Star’s FY2013 financial performance match that of FY2012, market observers think that this might be a tall order given an adverse shift in print advertising expenditure trends from the print to the broadcast segment, a shift in English print adex to the vernacular papers and a general lack of mega events to push adex spending.

Going forward, should there be further earnings disappointment in 2HFY2013, it would not be surprised if its final DPS is also be cut.

Market observers remain hopeful that Star’s DPS disappointment will end in its 1HFY2013 results. However given its weaker financial performance, underpinned by weaker adex and losses largely arising from its non print investments, do not rule out the possibility that Star’s lower DPS may become a new norm.

Its investment in its e paper does not seem to be bearing much fruit as advertisers continue to ignore The Star’s increased daily circulation. Although current yields are attractive at 6%, there is downside risk to Star’s DPS payout should the above negative factors materialize.