RAM Ratings reaffirms Star Media Group's debt ratings

Published on 09 July 2015

RAM Ratings has reaffirmed the ratings of Star Media Group 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/Stable, respectively. Both facilities have a combined limit of RM750 million.
The ratings reflect STAR’s dominant market position and robust financial profile. The Group’s flagship daily, The Star, remains the clear leader in the local English-language newspaper market with about 63% share of advertising expenditure in 2014 amongst English-language dailies, supported by its strong circulation and readership bases. STAR exhibits a conservative balance sheet. The Group’s average cash balance of RM500 million relative to an average debt level of around RM250 million in the past 5 financial years has enabled it to consistently boast a net-cash position. The Group also possesses a robust operating cashflow-generating ability, with its cashflow averaging around RM200 million annually, which has translated into an adjusted funds from operations (FFO) debt cover and operating cashflow debt cover of around 0.70 times and 0.80 times, respectively, in the same period. Additionally, STAR has a superior liquidity profile, with cash reserves of RM621.35 million relative to RM65.16 million of short-term debt as at end-December 2014.
Despite catastrophes during the year (triple airline tragedies and flood disaster), the Group has demonstrated commendable resilience in fiscal 2014, its top line easing only 1.1% y-o-y. This was cushioned by the events division’s revenue growth of 18.4%, which had moderated the 6.6% drop in the print division’s revenue. STAR has attempted to cut cost by reducing its staff size via a Voluntary Separation Schemes (VSS, as have other media players), reducing pagination and circulation copies where ad support is weak (Sabah and Sarawak). Excluding exceptional items (impairment charges and VSS), its operating profit before depreciation, interest and tax (OPBDIT) would have contracted marginally by 3.3%, resulting in the Group’s OPBDIT margin mildly narrowing to 21.7% from 22.2%.
The ratings are, however, moderated by the rise of digital media. In tandem with global trends, traditional media platforms (print, TV and radio) are under siege from the increasing prominence of digital media. “The digital age has propelled the importance of digital media as a popular, affordable advertising platform to reach out to the younger generation, in particular, who perceive online sites/news portals and social media as having a greater degree of independence,” notes Kevin Lim, RAM’s Head of Consumer and Industrial Ratings. Moreover, STAR is susceptible to economic cyclicality and newsprint price volatility while some of its recently acquired new-media assets are loss-making.
“Looking ahead, STAR’s financial profile is expected to remain strong. The Group is envisaged to remain in a net-cash position as it has no sizeable capex or visible mega acquisition plans in the near term,” adds Lim. STAR’s adjusted gearing ratio and adjusted FFO debt cover are expected to stay favourable, averaging around 0.3 times and 0.6 times, respectively, over the next few years.

Media contact
Sahil R Kamani
(603) 7628 1084
sahil@ram.com.my