Star’s 1H23 core net profit of RM2.7mn was in within ours but below consensus expectations, accounting for 46.0% and 37.0% of full year estimates, respectively. Star’s 1H23 top-line rose by 3.3% YoY predominantly supported by the launch of the Star Business Hub property development project and the concurrent rise in The Star's cover price. Nonetheless, the group’s bottom-line in 1H23 declined by 40.0% YoY due to lower revenue from radio broadcasting segment and a relatively stagnant contribution from the print, digital and events segment. We remain cautious on the recent upsurge in the value of the USD, which is the currency that sets the newsprint prices. This could potentially lead to higher expenses for Star. Upgrade our HOLD rating to BUY due to recent share price weakness, with an unchanged TP of RM0.45. Our valuation is based on 0.57x PBR (5-year average historical forward PBR) pegged to 2023 BVPS of 0.79 sen.

• Within expectations. 1HFY23 core net profit of RM2.7mn (YoY: -40.0%) was within ours but below consensus expectations accounting for 46.0% and 37.0% of full year forecast respectively.

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

• QoQ. Star’s 2QFY23 revenue improved by 11.6% QoQ to RM58m due to better revenue contribution from print, digital & events and property development & investment segment. In tandem, the group recorded higher PBT of RM1.2mn (6.6% YoY) and core net profit of RM1.6mn (50.1% YoY).

• YoY/ YTD. Star’s revenue in 1H23 experienced a 3.3% YoY increase, primarily driven by the launch of the Star Business Hub property development project and the concurrent increase in The Star's cover price. However, the group’s core net income during the same period saw a 40.0% YoY decrease. This decline was attributed to reduced revenue from the radio broadcasting segment (down by 13% YoY) and a relatively stagnant contribution from the print, digital, and events segments (only up by 3% YoY). EBITDA margin contracted by 5.1ppts in 1H23 due to higher operating expense which rose by 8.9% YoY.

• Outlook. Looking 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 expenses for Star. Since print segment generates approximately 80% of the group's revenue, there may be a possibility of some margin erosion in the medium term. We believe that in the current environment of elevated inflation, consumer spending may become more cautious, potentially resulting in higher operating expenses and reduced advertising expenditures. Nonetheless, going forward, we anticipate a decent earnings improvement, albeit at a slow rate. This will be aided by Star's rapid shift to digital media.

• Our call. No change in earnings forecast. We upgraded our HOLD rating to BUY due to recent share price weakness, with an unchanged TP of RM0.45. 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 - 23 Aug 2023