Star’s 3Q22 core PATAMI of RM2.6m brought 9M22’s sum to RM7m, which was above our and consensus expectations at 78.7% and 79.5% respectively. The results beat was mainly due to positive net taxation realized for the quarter. Despite the earnings beat, we leave our forecasts unchanged in view of a potential economic slowdown as well as a lack of earnings catalysts. Maintain HOLD with a slightly higher TP of RM0.31, based on a P/NTA target of 0.35x pegged to FY23 NTA/share. The group also has NCPS of 46.8 sen, which should provide downside support to its share price.

Above expectations. Star’s 3Q22 core PATAMI of RM2.6m (QoQ: +23.8%, YoY: -RM3.9m) brought 9M22’s sum to RM7m (9M21: -RM22.4m). The results came in above our and consensus full year estimates at 78.7% and 79.5% respectively. The results beat was mainly due to positive net taxation realized for the quarter. 9M22 core PATAMI was arrived at after adjusting for EIs totalling a net sum of RM488k.

Dividend. None (3Q21: none). 9M22: none (9M21: none).

QoQ. Revenue increased by a marginal +0.8% mainly attributed to its print and digital segments (+4.7%) while offset by its radio segment (-8.1%). We note that despite the increase in topline, PBT decreased by -9.5% due to continued increase in operating expenses arising from increasing newsprint cost as the USD continues to strengthen. However, core PATAMI increased by +23.8% due to positive net taxation of RM260k.

YoY. Revenue increased by +16% due to improvements in the print and digital (+10.1%) and radio segments (+41.1%). The increases in both segments are mainly due to higher adex as advertisers returned following the reopening of the economy. Consequently, the group recorded core PATAMI of RM2.6m as compared to core LATAMI of -RM3.8m in 3Q21.

YTD. Revenue increased by +17.2% due to the increase in the print and digital segment (+14.7%) and the radio segment (+32.4%) while partially offset by the event and exhibition segment (-75%). The increase in revenue was due to the same reason as mentioned in the YoY paragraph. In turn, the group recorded core PATAMI of RM7m as compared to core LATAMI of -RM22.4m in 9M21.

Outlook. While Star has recorded profits for the past 3 quarters, the group’s outlook remains subdued. Despite a massive improvement in the group’s bottom line due to its leaner cost structure, future earnings growth remains clouded as margins in the print segment remain compressed due to the strength of the USD, causing print cost to remain elevated. We also note that the past 3 quarters of earnings was largely contributed by the radio segment following the easing of covid restrictions and the return of drivers to the road. Moreover, the group’s event and exhibition segment remains muted despite the country having lifted most pandemic restrictions since 1 Apr 2022. With the USD expected to sustain its strength relative to the MYR, thus negatively impacting the print segment’s profitability, we remain sceptical on how long the group’s earnings recovery can be sustained by just the radio segment as the country faces a looming economic slowdown in CY23.

Forecast. Despite the results beat we leave our forecasts unchanged in view of the economic uncertainties ahead.

Maintain HOLD with a slightly higher TP of RM0.31 from RM0.30, pegged to our P/NTA target of 0.35x, as we rollover from FY22 to FY23 NTA/share. Despite the group returning to the black (not least due to its leaner cost structure), there remains much uncertainty ahead as well as a lack of any earnings catalysts. Nonetheless, its current share price is trading at a 60.9% discount to its NCPS of 46.8 sen, which should provide downside support to its share price. Moreover, its net cash position of RM339.3m also allows the group to capitalize on M&A opportunities should it arise.

Source: Hong Leong Investment Bank Research - 23 Nov 2022