Star’s 1Q21 core loss of -RM13.7m (4Q20: -RM18.8m; 1Q20: -RM3.5m) was below our (-RM34.9m) and consensus (-RM16.4m) full year forecasts, respectively. The results shortfall was due to lower-than-expected contributions from print segment. We lower our FY21/22 LAT forecasts from -RM34.9m/-RM19.4m to - RM44.4m/-RM21.3m. We introduce FY23 forecasts. We lower our TP to RM0.43 from RM0.45 based on a lower P/NTA target of 0.45x from 0.5x (roughly -0.5SD below 3-year mean) pegged to FY22 NTA/share. Downside for the stock would be supported by NCPS of RM0.47. Maintain HOLD.

Below expectations. Star’s 1Q21 core loss of -RM13.7m (4Q20: -RM18.8m; 1Q20: - RM3.5m) was below our (-RM34.9m) and consensus (-RM16.4m) full year forecasts respectively. The results shortfall was due to lower-than-expected contributions from print segment. Core net loss was arrived at after adjusting for allowance of credit losses (RM582k), forex loss (RM29k) and reversal of allowance of credit losses (RM183k).

Dividend. None (1Q20: None).

QoQ. Revenue decreased -16.4% mainly due to lower contribution from the print segment. Despite the decline in revenue, core net loss narrowed to -RM13.7m (from - RM18.8m in 4Q20) due to lower operating expenses.

YoY. Revenue decreased -35.2% due to lower contributions from print and digital (- 37.8%), radio (-2.1%) and event (-59.1%) segments. Although digital revenue saw a growth of 17% (from the increase in digital adex and subscription revenue), overall revenue from the print and digital segment was still down by -37.8% due to a soft economy following the imposition of MCO2.0. Radio segment revenue declined due to lower radix, while event segment was dragged by lower offline events in compliance with SOP. As such, core net loss widened to -RM13.7m (from core net loss of -RM2.9m SPLY).

Outlook. We expect the group’s 2Q21 earnings continue to be weak as advertisers are cautious in their spending in view of the imposition of MCO3.0. Following the impending cessation of Dimsum and the recent disposal of iBilik, we anticipate that the group could potentially embark on a cost and headcount rationalization exercise in the near term to consolidate its operations. Going forward, Star is also looking for new business opportunities and aims to have ~30% of its revenue to come from new businesses that may be related to property or digital products. We opine that the future earnings prospects of the company would rely on (i) the pace of recovery of the economy; (ii) its cost rationalization efforts; (iii) the strengthening of its digital assets; and (iv) potential fresh earnings catalysts from new business ventures.

Forecast. Given the results shortfall, we widen our FY21/22 LAT forecasts from - RM34.9m/-RM19.4m to -RM44.4m/-RM21.3m. We introduce FY23 forecasts.

Maintain HOLD, TP: RM0.43 (from RM0.45). In view of the weak results, we lower our P/NTA target from 0.5x to 0.45x (roughly -0.5SD below 3-year mean) pegged to FY22 NTA/share. We maintain our HOLD call as we continue to be cautious on the group’s prospects given the soft adex environment and the lack of fresh earnings catalyst. Nonetheless, downside of the stock would be supported by its net cash of RM0.47.

Source: Hong Leong Investment Bank Research - 27 May 2021