Star’s 3Q21 core LATAMI of -RM3.8m brought 9M21’s sum to -RM22.4m, which was above our and consensus expectations. The deviation was mainly due to better-than-expected revenue contributions from its print and digital segments. We are encouraged by the results improvements due to the group’s successful cost rationalization efforts as well as its digital segment starting to gain traction. After imputing higher revenue and lower operating cost assumptions our FY21/22/23 forecasts are increased to -RM21.9m/-RM2.8m/RM7.5m from -RM37.2m/-RM15.8m/-RM6.2m previously. Maintain BUY with unchanged TP of RM0.43, based on a P/NTA ratio of 0.45x pegged to FY22 NTA/share. Current share price is trading at 28.1% discount to its NCPS of RM0.48, which would provide downside support.

Above expectations. Star’s 3Q21 core LATAMI of -RM3.8m (2Q21: -RM4.9m, 3Q20: -RM21.4m) brought 9M21’s sum to -RM22.4m (9M20: -RM51.6m), which was above our and consensus full year estimates of -RM37.2m and -RM36.5m, respectively. The deviation was mainly due to better-than-expected revenue contributions from its print and digital segments. 9M21 core LATAMI was arrived at after adjusting for reversal of compensation income from JAKS (RM50.5m), impairment of PPE and intangible assets (RM32.7m), allowance of credit losses (RM995k) and forex loss (RM156k).

Dividend. None (3Q20: none). 9M21: none (9M20: none).

QoQ. Revenue was flattish (-1.1%) contributed by its print and digital segments (+6.5%) while offset by its radio segment (-18.6%). Despite the lockdown restrictions during most of the quarter (most states only transitioned to NRP Phase 2 from Sept onwards), we are pleasantly surprised that the group’s print and digital segment s recorded an improvement of 6.5%, which could indicate that (i) newsprint sales and adex have bottomed out in the previous quarter; and (ii) its digital segment is finally gaining enough traction to contribute meaningfully to the group’s revenue. Core LATAMI recorded a marginal improvement to -RM3.8m (from -RM4.9m) as a result of lower operating expenses.

YoY. Revenue declined -4.1% due to the declines in print and digital segments (- 0.6%) while partially offset by its radio segment (+1.3%). The declines in print and digital segments are due to lower newsprint sales and adex as a result of the movement restrictions under the NRP. Despite the revenue decline, core LATAMI recorded a commendable improvement to -RM3.8m (from -RM21.8m) due to lower operating expenses from the group’s cost rationalisation exercise since 2H20.

YTD. Revenue declined -6.8% due to the decline in print and digital segments (-8.7%) partially offset by its radio segment (+34.2%). The decline in revenue was mainly due to the higher base in 1Q20 as the Covid-19 effect and MCO1.0 only started to come into effect since mid-March last year. Despite the revenue decline, core LATAMI narrowed to -RM22.4m (from -RM51.6m) due to lower operating expenses from the group’s cost rationalisation exercise since 2H20.

Outlook. We are encouraged by the results improvements due to the group’s successful cost rationalization efforts as well as its digital segment starting to gain traction. We expect a sequential improvement in 4Q21 due to (i) the easing of lockdown restrictions which will bode well for newsprint sales and its radio segments (higher road traffic); (ii) increase in adex due to the holiday season in Dec as well as advertisers exhausting their marketing budget towards year end; and (iii) the cessation of its loss making dimsum (end-Sep). The group is currently on the lookout for M&A opportunities as well as to penetrate into new businesses that have a promising outlook.

Source: Hong Leong Investment Bank Research - 19 Nov 2021