Star’s 1H21 core LATAMI of -RM18.6m (1H20: -RM30.1m) was above our but below consensus estimates. The results beat was due to better-than-expected contribution from its radio, print and digital segments. We narrowed our FY21/22/23 core LATAMI forecasts to -RM37.2m/-RM15.8m/-RM6.2m. Upgrade to BUY with unchanged TP of RM0.43 (0.45x FY22 P/NTA). Although we opine that more needs to be done in order for the group to return to the black, we are encouraged by the growth in its digital segment as well as the lower cost structure as a result of its cost rationalization efforts. Downside of the stock would be supported by its NCPS of RM0.47.

Above expectation. Star’s 2Q21 core LATAMI of -RM4.9m (1Q21: -RM13.7m, 2Q20: -RM26.6m) brought 1H21’s sum to -RM18.6m (1H20: -RM30.1m). The results was above our (-RM44.4m) but below consensus (-RM33.4m) full year loss forecasts. The results beat was due to better-than-expected contribution from its radio, print and digital segments. 1H21 core LATAMI was arrived at after adjusting for impairment of PPE and intangible assets (RM32.7m), allowance of credit losses (RM731k), forex loss (RM130k) and reversal of allowance of credit losses (-RM4k).

Dividend. None (2Q20: none). 1H21: none (1H20: none).

QoQ. Revenue increased by 9.7% contributed by its radio (+9.2%), print and digital (+13.5%) segments. Consequently, the group recorded a narrower core LATAMI of - RM4.9m (vs. -RM13.7m) in line with the improvements in revenue alongside with lower operating expenses.

YoY. Revenue increased by 48.3% contributed by its radio (+2.4x due to low base effect), print and digital (+35.2%) segments. The improvements in both segments were due to the less restrictive lockdown in MCO3.0/ Phase 1 this quarter compared to MCO1.0 SPLY, which resulted in higher newsprint sales and higher radix (from higher road traffic). Besides this, we also note that there was an increase in its digital revenue (+17% YoY) attributable to the increase in digital adex as well an increase in paywall subscription revenue. Consequently, the group recorded a narrower core LATAMI of -RM4.9m (vs. -RM26.6m) in line with the improvement in revenue alongside lower operating expenses.

YTD. Revenue decreased by -8.1% due to the decline in its event (-61.3%), print and digital (-12.7%) segments which more than offset the increase in its radio segment (+55.6%). The decline in revenue was mainly due to the higher base as the Covid-19 effect and MCO1.0 only started to come into effect since mid-March last year. Despite the revenue decline, the group recorded a narrower core LATAMI of -RM18.6m (vs. - RM30.1m) due to lower operating expenses from the group’s cost rationalisation exercise that was carried out since 2H20.

Outlook. We are encouraged by the improvements as a result of cost rationalization efforts by the group as well as its digital segment starting to gain traction. The gradual easing of lockdown restrictions (Aug onwards) as well as the cessation of dimsum (end-Sep) may also offer some reprieve to the group and we expect losses to narrow in 4Q21. We note that management is currently looking for new business opportunities including a joint application with Paramount to apply for digital banking license from BNM. We opine that the future earnings prospects of the company would rely on (i) the pace of recovery of the economy; (ii) the strengthening of its digital assets; and (iii) potential fresh earnings catalysts from new business ventures.

Forecast. In view of the results beat, we narrowed our FY21/22/23 LATAMI forecasts to -RM37.2m/-RM15.8m/-RM6.2m from -RM44.4m/-RM21.3m/-RM15m previously.

Upgrade to BUY from Hold with unchanged TP of RM0.43 pegged to our P/NTA target of 0.45x (roughly -0.5SD below 3-year mean) based on FY22 NTA/share. The current share price is trading at 23.4% discount to its NCPS of RM0.47, which would provide downside support to its share price. Although we opine that more needs to be done in order for the group to return to the black, we are encouraged by the growth in its digital segment as well as its lower cost structure as a result of its effective cost rationalization efforts. Its net cash position of RM346.3m also allows the group to capitalize on any M&A opportunities should it arise.

Source: Hong Leong Investment Bank Research - 27 Aug 2021