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REDBERRY Media Group, the media business unit of agricultural chemicals producer Ancom Bhd (fundamental: 0.55; valuation: 1.20), is in talks to sell its airport advertising business at around RM100 million.

Potential buyers, say industry sources, include Media Prima Bhd (fundamental: 1.80; valuation: 1.20), whose subsidiary Big Tree is the biggest outdoor advertising company in the country and will be keen to extend its reach into airports.

Another party will be Star Publications (M) Bhd (fundamental: 2.70; valuation: 1.20), which wants to diversify its revenue stream from mainly the print segment.

Redberry, which is also involved in the outdoor/billboard and in-store advertising business, conducts its airport advertising operation via Meru Utama Sdn Bhd.

“Redberry and Star have been in [informal] talks,” says a source. According to the financial report for its nine months ended Sept 30, 2014, Star was sitting pretty on RM354.3 million net cash.

“The group does have money to buy assets but the acquisitions have to make sense and be a good fit for it. Diversification is key to it and it also seems keen on digital assets,” says a local media analyst.

Should Redberry sell Meru Utama, its planned listing will not take place this year as the bulk of the former’s revenue and profit is from the 75%-owned unit.

According to its audited accounts for FY2013 ended May 31, Meru Utama registered a net profit of RM5.68 million — slightly lower than its RM5.87 million earnings a year earlier.

A price tag of RM100 million values Meru Utama at a price-earnings ratio of nearly 20 times. 

On its website, it says it has been a strategic business partner of Malaysia Airports Holdings Bhd (MAHB) in promoting and developing advertising at airports for the past 29 years.

The Edge, quoting sources, wrote in November last year that Redberry was eyeing the listing of its media business on the local bourse as early as this year. It said what could be included in the listing were media properties under Ancom’s wholly-owned subsidiary Redberry Sdn Bhd and the privately held The Malay Mail Group.

The Malay Mail Group or its operating entity Malay Mail Sdn Bhd is currently not a part of Ancom. Its connection to the group is through Ancom group managing director Datuk Siew Kah Wei and non-executive, non-independent director Tan Sri Al Amin Abdul Majid. Both have a stake in Malay Mail through their respective 50% equity interest in Dahlia Megah Sdn Bhd, which, in turn, has a 46.79% stake in Malay Mail.

In a reply to a Bursa query on The Edge’s November story, Ancom says it is constantly on the lookout for opportunities to expand the group’s media business locally and regionally through mergers and acquisitions, alliances, joint ventures and business collaborations, with the ultimate objective of listing Redberry.

Why would Star be interested?

It is no secret that the print industry has been disrupted by digital technology and media players like Star that are traditionally strong in print are racing against the clock to diversify to strengthen their position.

According to the latest data by the Audit Bureau of Circulations Malaysia, total newspaper circulation volume in 1H2014 fell 10.9% year on year in the English and vernacular segments. In the English segment, circulation dropped 9.7% y-o-y to 767,891 copies from January to June 2014.

CIMB Research, in a Jan 26 note, says the drop can be attributed to a normalising effect following the general election in 2013, a structural shift towards the digital platform and a persistent weakness in consumer sentiment.

“Despite the ongoing decline in print circulation, Star managed to buck the trend and recorded 0.6% and 0.3% y-o-y growth for The Star and Sunday Star respectively. We believe this is mainly due to its strong position as the market leader in the English segment and higher share of adex.

“Star also continues to dominate the digital paper segment with a strong leading position of over 80,000 daily circulation compared with 3,000 for The New Straits Times Press,” it says. “Overall, we expect the declining trend in print circulation to continue due to rising consumer exposure to online and digital platforms.”

Star has been aggressively diversifying into the digital space. In 2012, it launched Star ePaper. The group notes that circulation for its digital edition saw a 535% jump to 49,006 copies for the six months ended June 30, 2013, from a year earlier.

Then in 2013, it expanded its digital footprint through the acquisition of Ocision Sdn Bhd, which owned three Internet portals — iBilik.com, Propwall.com and Carsifu.com.

In 9MFY2014, Star saw its net profit decline 8.8% to RM89.93 million due to higher operating expenses related mainly to a VSS amounting to RM11.5 million. Revenue for the period declined 0.4% to RM732.85 million.

Maybank Investment Research says it expects Star’s 4QFY2014 core net profit to be flattish at about RM35 million quarter on quarter. “This will bring 4QFY2014 core net profit down between 20% and 25% y-o-y. For the whole of 2014, we expect core net profit to come within expectations at about RM135 million or down between 5% and 6% y-o-y,” it notes.

It adds that while it does not expect organic earnings growth to be exciting in the near future, it still likes Star for its cost-saving initiatives and operational turnaround. “Its strong balance sheet also allows it to pay good dividends while expanding via M&A.”


Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on February 16 - 22, 2015.

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