Leading English dailies. Listed since 1995, Star Media Group (STAR) is principally engaged in the publication, printing and distribution of newspaper and magazine, digital content services and managers, promoters and organizers of events. Among its established brands include The Star, Kuntum, mStar, Suria, 988, Star Property, RAGE, Majoriti etc. In FY21, the group derived 84.7% of its FY21 revenue from the print segment, while the rest was contributed by the radio (13.7%) and event and exhibition (1.4%) divisions.

Earnings outlook on the mend. Led by a leaner cost structure and strong pick up in its radio segment (PBT: +8.7x YoY), STAR registered 9M22 core net profit of RM7m, which beat ours and consensus full-year estimates at 78.7% and 79.5% respectively, despite the group’s bread and butter printing segment was compressed by the elevated printing cost amid the strong USD environment. Nevertheless, given that USD/MYR had peaked and started easing in 4Q22 (52-week high: 4.75) to 4.28 as at 25 Jan, we anticipate improvement in STAR’s print segment going forward. This, together with resilient showing by its radio and improvement in the events segment, we are projecting STAR’s core net profit to increase by 15% YoY in FY23.  

Reward outweighing risks. Although outlook for the media sector in FY23 will be clouded by looming economic slowdown which may potentially dampen advertising expenditure, we see limited downside for STAR, supported by its NCPS and NTA of 46.8sen and 90sen. Since the onset of COVID-19, STAR’s share price has eased 38% from a high of RM0.49 to RM0.305 yesterday, implying a 34% and 66% discount against its NCPS and NTA, respectively. Besides, the market has yet to fully appreciate its huge undervalued list of properties, notably the industrial landbanks in Bayan Lepas, Bentong and Shah Alam (booked at 1997-2004’s valuations). Hence, should there be revaluation or disposal of its properties, we reckon STAR’s NTA/NCPS will be even higher, making STAR a more palatable investment name.  

Ripe for further rebound. Technically, STAR has staged a decisive breakout above its long-term resistance level of RM0.315 yesterday, which indicate the start of a new up leg. Taking cue from the bullish momentum, we expect STAR to advance further toward RM0.35-0.39-0.42 levels. Cut loss at RM0.28

Source: Hong Leong Investment Bank Research - 26 Jan 2023