Star’s 1H22 core PATAMI of RM4.4m (1H21: -RM18.6m) came in above our and consensus estimates. The results beat was thanks to the continued recovery in the radio segment. We increase our FY22/23/24 forecasts to RM8.9m/RM10.3m/RM11.7m given the results beat. Maintain HOLD with an unchanged TP of RM0.30 pegged to our P/NTA target of 0.35x based on FY22 NTA/share. Despite the results beat, we opine that more needed to be done in order for the group fully turnaround on its path to recovery. Downside of the stock would be supported by its NCPS of 47.7 sen.

Above expectations. Star’s 2Q22 core PATAMI of RM2.1m (QoQ: -12.5%, 2Q21: -RM4.9m) brought 1H22’s sum to RM4.4m (1H21: -RM18.6m). The results was above our estimates (we projected full year loss of -RM2.9m) and consensus (64.4%). The results beat was thanks to the continued recovery in the radio segment. 1H22 core PATAMI was arrived at after adjusting for minor EIs totalling a net sum of RM104k.

Dividend. None (2Q21: None). 1H22: None (1H21: None).

QoQ. Revenue increased by 2.1% contributed by its print and digital (+3%) and radio (+1.2%) segments. However, core PATAMI decreased by -12.5% due to an increase in operating expenses as well as higher newsprint cost due to the strengthening of the USD against RM.

YoY. Revenue increased by 13.9% mainly due to contributions by its radio (+24.6%) and its print and digital (+12.1%) segments. The improvements in both segments were due to higher demand and adex spending by advertisers following the reopening of economic activities as well as the full reopening of Malaysia’s borders on 1 Apr 2022. Consequently, the group recorded core PATAMI of RM2.1m (vs. -RM4.9m) in line with the improvement in revenue alongside lower operating expenses.

YTD. Revenue increased by 17.8% due to improvements in the radio (+29.5%) and print and digital (+17.2%) but partially offset by event (-74.5%). The increase in revenue was due to the same reasons as mentioned in the YoY paragraph. Consequently, the group recorded core PATAMI of RM4.4m as compared to core LATAMI of -RM18.6m in 1H21.

Outlook. We are encouraged by the improvements shown primarily due to the better than-expected contributions by the group’s radio segment, which is in line with the industry growth trend in radex. Nonetheless, we remain cautious on the group’s future prospects as its print segment – its bread and butter – still faces elevated newsprint cost in view of the strength in the USD, which is at a 5-year high. This will continue to exert pressure on the group’s bottom line and could offset any recovery in the group’s other segments. Therefore, we opine that Star is not entirely out of the woods yet and still has more to do in order to fully turnaround on its path to recovery.

Forecast. We increase our FY22/23/24 forecasts to RM8.9m/RM10.3m/RM11.7m from -RM2.9m/-RM1.0m/RM2.2m previously given the better than expected results.

Maintain HOLD with an unchanged TP of RM0.30 pegged to our P/NTA target of 0.35x based on FY22 NTA/share. We remain cautious on the group’s prospects given the uncertainties in the global environment clouding its earnings visibility. Nonetheless, the group’s current share price is trading at a 37.1% discount to its NCPS of 47.7 sen, which should provide downside support to its share price. Moreover, its net cash position of RM345.9m also allows the group to capitalize on M&A opportunities should it arise.

Source: Hong Leong Investment Bank Research - 24 Aug 2022