The Star Media Group (Star) 1Q23 core net profit of RM1.0mn was below ours and consensus expectations, accounting 12.0% and 18.0% of full  year estimates respectively dragged by lower-than-expected revenue  from all core segments. Net profit declined by 57.3% YoY hampered by  lower contribution from all core business. We remain wary of the recent  upsurge in the value of the USD, which is the currency that sets the  newsprint prices. This could lead to higher operating expenses for Star.  Maintain a HOLD rating with lower TP of RM0.45 (from RM0.52). Our  valuation is based on 0.57x PBR (5-year average historical forward PBR)  pegged to 2023 BVPS of 0.79 sen.

• Below expectations. 1Q23 net profit of RM1.0mn (YoY: -57.3%) was  below ours and consensus expectations accounting 12.0% and 18.0% of  full year forecast respectively. The deviation against our projection was  mainly due to the lower-than-expected contribution from the group’s  core business.

• Dividend. No dividend was declared for the current quarter under review.

• QoQ. Star’s 1Q23 revenue dropped by 10.4% QoQ to RM52m due to the  decrease in revenue from Print, Digital and Events segment of the group.  The group recorded a PBT of RM1.1mn (vs RM1.7mn in 4Q22) dragged  higher operating expenses arising from an increase in newsprint costs  amid the weakening of MYR against USD.

• YoY/ YTD. Top-line and bottom-line decreased by 1.3% YoY and 57.3%  YoY respectively, due to subdued performance across the group’s core  business. Note that data Print, Digital and Events segment was down by  1% YoY, Radio Broadcasting decreased by 11.0% YoY and Property  Development & Investment that recorded loss before tax of RM0.5mn (versus loss before tax of RM1.1mn in 1Q22).

• Outlook. Going ahead, we remain wary of the recent upsurge in the value  of the USD, which is the currency that sets the newsprint prices. This  could lead to higher operating expenses for Star. Since print segment  generates approximately 80% of the group's revenue, there may be some  margin erosion in the medium term. On the flip side, there could be an  upside risks to earnings should USD weakens, a favourable prospect for  the bottom line.

• Forecast: Given challenging media sector business outlook amid an  increase input cost, we revised our operational costs as well as core  segment earnings forecast assumptions. Hence, our lower earnings  forecast to RM6mn and RM8mn for FY23/24 from RM8mn and RM10mn  previously.

• Our call. Maintain HOLD rating with lower TP of RM0.45 (from RM0.52).  Our valuation is based on 0.57x PBR (5-year average historical forward  PBR) pegged to 2023 BVPS of 0.79 sen.

Source: BIMB Securities Research - 24 May 2023