KUALA LUMPUR: RAM Rating Services Bhd is cautious about STAR PUBLICATIONS (M) BHD []'s new new investments may pose new risks to the group.
The ratings agency said on Thursday, April 21 that in the near term, the group 'may invest some RM60 million in new media assets', that is television channels, radio stations, online media and event organising.
'The group is expected to incur losses from some of these investments during their respective gestation periods given that they are fairly new businesses.
'In addition, Star lacks experience in the TV segment, which is viewed to be more competitive than its mainstay newspaper business,' it said.
RAM Ratings assigned respective preliminary long- and short-term ratings of AA1 and P1 to Star's proposed up to RM750 million medium-term notes (MTN) programme (2011/2026) and proposed up to RM750 million commercial papers programme (2011/2018); both facilities have a combined limit of RM750 million in nominal value.
Concurrently, RAM Ratings reaffirmed the AA1/P1 ratings of STAR's RM350 million commercial papers/MTN programme (2005/2012). Both long-term ratings have a stable outlook.
It said 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, supported by its strong circulation and readership bases.
RAM Ratings said Star's balance sheet and cashflow-protection metrics remained strong as at end-December 2010; its gearing ratio had more than halved to 0.09 times (end-December 2009: 0.23 times), underscored by a lighter debt load.
At the same time, Star retained its net-cash position. Led by its lower borrowings and stellar operating performance amid a more robust advertising market in 2010, the group's funds from operations debt cover (FFODC) catapulted from 0.70 times to over 2 times.
However, the ratings agency said the ratings remained constrained by the group's susceptibility to economic cycles, its vulnerability to newsprint price volatility and the increasing prominence of other media platforms.
While print advertising expenditure (adex) has expanded, TV and radio adex has been rising more rapidly.
Circulation and readership of English-language newspapers have also been declining (although at a slower pace than in more developed nations).
Nonetheless, it said print will remain relevant in the eyes of Malaysian advertisers, at least in the medium term.
'Even factoring in additional borrowings for its investments, capital expenditure for the possible development of the Star media hub in Shah Alam and working capital, we expect the group to continue exhibiting conservative gearing levels and sturdy debt-coverage ratios.
'Star's gearing ratio is expected to be kept at around 0.3'0.4 times while its FFODC is envisaged to slip, albeit remain favourable at a minimum of 0.5 times over the next two years,' said RAM Ratings' head of consumer & industrial ratings Kevin Lim.
The ratings agency said on Thursday, April 21 that in the near term, the group 'may invest some RM60 million in new media assets', that is television channels, radio stations, online media and event organising.
'The group is expected to incur losses from some of these investments during their respective gestation periods given that they are fairly new businesses.
'In addition, Star lacks experience in the TV segment, which is viewed to be more competitive than its mainstay newspaper business,' it said.
RAM Ratings assigned respective preliminary long- and short-term ratings of AA1 and P1 to Star's proposed up to RM750 million medium-term notes (MTN) programme (2011/2026) and proposed up to RM750 million commercial papers programme (2011/2018); both facilities have a combined limit of RM750 million in nominal value.
Concurrently, RAM Ratings reaffirmed the AA1/P1 ratings of STAR's RM350 million commercial papers/MTN programme (2005/2012). Both long-term ratings have a stable outlook.
It said 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, supported by its strong circulation and readership bases.
RAM Ratings said Star's balance sheet and cashflow-protection metrics remained strong as at end-December 2010; its gearing ratio had more than halved to 0.09 times (end-December 2009: 0.23 times), underscored by a lighter debt load.
At the same time, Star retained its net-cash position. Led by its lower borrowings and stellar operating performance amid a more robust advertising market in 2010, the group's funds from operations debt cover (FFODC) catapulted from 0.70 times to over 2 times.
However, the ratings agency said the ratings remained constrained by the group's susceptibility to economic cycles, its vulnerability to newsprint price volatility and the increasing prominence of other media platforms.
While print advertising expenditure (adex) has expanded, TV and radio adex has been rising more rapidly.
Circulation and readership of English-language newspapers have also been declining (although at a slower pace than in more developed nations).
Nonetheless, it said print will remain relevant in the eyes of Malaysian advertisers, at least in the medium term.
'Even factoring in additional borrowings for its investments, capital expenditure for the possible development of the Star media hub in Shah Alam and working capital, we expect the group to continue exhibiting conservative gearing levels and sturdy debt-coverage ratios.
'Star's gearing ratio is expected to be kept at around 0.3'0.4 times while its FFODC is envisaged to slip, albeit remain favourable at a minimum of 0.5 times over the next two years,' said RAM Ratings' head of consumer & industrial ratings Kevin Lim.
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