RAM Ratings reaffirms ratings of Star Publications’ debt issues

Published on 27 June 2013

RAM Ratings has reaffirmed the respective short- and long-term ratings of Star Publications (Malaysia) Berhad’s (“STAR” or “the Group”) RM750 million Commercial Papers Programme (2011/2018) and RM750 million Medium-Term Notes Programme (2011/2026) at P1 and AA1; both facilities have a combined limit of RM750 million. The long-term rating has a stable outlook.

The ratings reflect STAR’s dominant market position and solid financial profile. The Group’s flagship daily, The Star, remains the clear leader among local English-language newspapers. The Star is the most read English-language daily, with an 83% share of total readership, justifying its pole position in advertising expenditure (“adex”) share (at around 67%) amongst its competitors. While industry-wide circulation numbers have fallen, STAR’s circulation declined at a lower compounded rate than that of its competitors. We opine that the newspaper publication industry has prohibitive entry barriers as it is highly regulated and the issuance of new licences is limited.   

STAR exhibits a conservative balance sheet, having maintained its adjusted gearing ratio at below 0.3 times in the past 5 financial years. Backed by an average cash balance of RM500 million during this period, the Group has consistently boasted a net-cash position. Coupled with its light debt load, STAR’s average adjusted funds from operations (“FFO”) debt cover has been slightly above 1 time for the last 5 years.

As the Group has not planned any major capex or acquisition, we expect its financial metrics to stay above average. Even if it takes on additional debt of RM50 million per year for the next 3 years for investments/acquisitions, its adjusted gearing ratio is envisaged to stay favourable at around 0.3 times over the next 5 years. STAR’s FFO debt cover is envisaged to remain above 0.5 times.

The Group’s rating remains moderated by the rising prominence of other media platforms, which pose a threat to the traditionally dominant print media. STAR’s ratings are further constrained by the Group’s susceptibility to economic cycles, given that it is heavily dependent on adex. As newsprint makes up 30%-40% of STAR’s cost of sales, its vulnerability to negative movements in newsprint prices is also a factor. That said, the Group has historically stocked up as much as 18 months of its newsprint requirements and aims to keep its inventory holding period at 12 months, thereby giving it some flexibility in deferring inventory purchases when newsprint prices are high. Elsewhere, the Group’s new media assets, acquired over the last 2 years, are still loss-making as they remain in their gestation periods. As the aggregate losses of these businesses are relatively small, it is not expected to be a significant drag on STAR’s results in the immediate term. 

Media contact

Sahil R Kamani

(603) 7628 1084

sahil@ram.com.my