Star’s FY21 core net loss of -RM10.5m (FY20: -RM70.3m) was above our and consensus full year loss estimates of -RM21.9m and -RM26.8m due to the positive net taxation recognized. Despite the positive results surprise, we lower our FY22/23 forecasts to -RM9.4m/-RM1m from -RM2.8m/+RM7.5m mainly to account for higher newsprint cost and a slower recovery in print sales. Downgrade to HOLD with a lower TP of RM0.30 (from RM0.43) pegged to a lower P/NTA target of 0.3x (from 0.45x) based on FY22 NTA/share. We are cautious on the group’s prospects as we foresee challenges, such as slow recovery in print sales and high newsprint cost in its turnaround to profitability. Nonetheless, its NCPS of RM0.47 should provide downside support to its share price.

Above expectations. Star’s 4Q21 core PATAMI of RM11.8m (3Q21: -RM3.8m; 4Q20: -RM18.8m) brought FY21’s sum to -RM10.5m (FY20: -RM70.3m), which was above our and consensus full year loss estimates of -RM21.9m and -RM26.8m, respectively. The positive deviation was due to the positive net taxation recognized – i.e. reversal of deferred tax (mainly due to impairment of PPE) of RM23.5m. FY21 core LATAMI was arrived at after adjusting for reversal of compensation income from JAKS (+RM52.5m), impairment of PPE and intangible assets (+RM71.6m), gain on disposal of PPE (-RM2m), reversal of allowance of credit losses (-RM553k) and forex gain (-RM49k).

Dividend. None (4Q20: none). FY21: none (FY20: none).

QoQ. Revenue increased 11.4% lifted mainly by radio (+21.9%), event (RM1.6m vs. RM16k in 3Q21) but partially offset by print and digital (-2.7%). Improvement in radio segment was on the back of higher radex due to higher road traffic following the easing of lockdown restrictions, while print and digital decline was due to the cessation of dimsum by end-Sep. The group also managed to organize two physical events during the quarter, which resulted in positive contribution to the top line. Core net profit rebounded by a larger magnitude mainly due to positive net taxation of +RM17.6m (vs. -RM99k in 3Q21).

YoY. Revenue increased marginally at 1.1% as improvement from radio (+9.5%) was partially offset by lower print and digital (-5.9%). Radio saw an encouraging growth in line with the industry growth trend in radex, while print and digital decline was due to the cessation of dimsum. Core net profit rebounded to RM11.8m (from -RM18.8m SPLY) due to increase in radex which has a better margin, cessation of loss making dimsum, lower opex from the group’s cost rationalisation and positive net taxation of +RM17.6m (vs. -RM3.4m SPLY).

YTD. Revenue declined -4.7% mainly dragged by print and digital (-8%) while partially offset by radio (+26.6%). Revenue decline in print and digital was mainly due to the longer lockdown period of c.4 months (vs. c.2 months SPLY) which impacted print sales, while radio showed resilient growth despite longer lockdown likely due to advertisers returning to broadcasting channels to advertise as well as the lower base SPLY when advertisers were more cautious in ad-spend. Despite the revenue decline, core LATAMI narrowed by a wide margin to -RM10.5m (from -RM70.3m SPLY) aided by the increase in radex which has a better margin, lower opex from the group’s cost rationalisation, cessation of loss-making dimsum, and positive net taxation of +RM17.3m (vs. -RM3.3m SPLY).

Outlook. We anticipate a challenging quarter ahead as the Omicron wave will likely result in lower outdoor activities, which could lead to lower print sales and radex . Besides that, newsprint cost is also rising due to increase in shipping and paper pulp cost. While the group had made positive headways in cost rationalization, nonetheless, we continue to see challenges, such as slow recovery in print sales and high newsprint cost, in its turnaround to profitability. The group mentioned that it had initiated to venture into property development to maximise the value of the land assets. While this venture may potentially unlock value of its assets, we view property development as non-core and non-synergistic with its media business and may also likely require new headcount and expertise to execute the strategy. Other than this, the group is also on the lookout for M&A opportunities as well as to penetrate into new businesses that have a promising outlook.

Forecast. Despite the positive result surprise, we lower our FY22/23 forecasts to -RM9.4m/-RM1m from -RM2.8/RM7.5m mainly to account for higher newsprint cost and a slower recovery in print sales.

Downgrade to HOLD with a lower TP of RM0.30 (from RM0.43) pegged to a lower P/NTA target of 0.3x (from 0.45x) based on FY22 NTA/share. We lower our P/NTA target due to the lack of earning catalysts and the persistently challenging operating landscape for the group, clouding its earning visibility. Nonetheless, we note that the current share price is trading at 31.9% discount to its NCPS of RM0.47, which would provide downside support to its share price. Its net cash position of RM343.1m also allows the group to capitalize on M&A opportunities should it arise.

Source: Hong Leong Investment Bank Research - 1 Mar 2022