Star announced that it has entered into a conditional sale and purchase agreement with Matang (plantation company listed on ACE market) for the disposal of 2 units of double-storey semi-detached factory and warehouse annexed with a one-and-a-half storey office building and other ancillary buildings to be erected on part of the land for an aggregate disposal consideration of RM33m. Despite the positive development, we remain cautious on Star’s longer term prospects given the lack of clarity on further property monetization and business direction. Maintain HOLD with an unchanged 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.

NEWSBREAK

On Friday (Feb 10), Star announced that it had entered into a conditional sale and purchase agreement with Matang Berhad (plantation company listed on ACE market) for the disposal of 2 units of double-storey semi-detached factory and warehouse annexed with a one-and-a-half storey office building and other ancillary buildings to be erected on part of the land. The land is located at Bukit Jelutong Industrial Park, Shah Alam with a size of 111.1k sqft (or 2.5 acres). The land was disposed for a consideration of RM33m, to be satisfied via a combination of (i) cash payment (RM4.1m) and allotment and issuance of 357m new shares in Matang at 8.09 sen per share (RM28.9m). For reference, the closing price for Matang on 10 Feb was 9 sen. The transaction is a related-party transaction where MCA is the substantial shareholder of Star (43.23%) and Matang (17.15%).

HLIB’s VIEW

Implications. The current transaction is expected to be completed by 2Q23. Should this materialize, the group would realize a net pro forma gain of about RM15.6m (RM33m less estimated development costs and expenses of RM17.4m), which translates to a substantial gain of 89.7%. Post transaction, the group is expected to hold a 13% stake in Matang, providing Star with exposure to the plantation sector.

Undervalued land banks and properties. Given the vast gain realized form this transaction, this should bring to attention the group’s undervalued list of properties, namely its industrial land banks in Bayan Lepas and Shah Alam, which were last valued from 1997-2004. Should there be further disposals or a revaluation of the group’s list of properties, there could be further upside to the properties total net book value which currently sits at RM278.8m. As at 30 Sep 2022, the group has net asset per share and NCPS of 86.6 sen and 46.8 sen, respectively.

Remain cautious on longer term prospects. We view this development positively as it unlocks the value of its land while also diversifying its business from its print business which is suffering a decline in revenue. Nonetheless, given the lack of clarity from management on the business direction, we are still unsure whether there will be further land / property monetization and diversification into other businesses. As such, we remain cautious on the group’s long term prospects as its print segment remains challenging.

Maintain HOLD with an unchanged TP of RM0.31, based on a P/NTA target of 0.35x pegged to FY23 NTA/share. Despite the group returning to the black in its 3Q, there remains much uncertainty ahead as well as a lack of earnings catalysts. Nonetheless, the recent weakness in the USD should help lower newsprint cost for the group’s print segment. Moreover, its current share price is trading at a 68% discount to its NCPS of 46.8 sen, which should provide downside support to its share price. Star’s net cash position of RM339.3m will also allow the group to capitalize on M&A opportunities should it arise.

Source: Hong Leong Investment Bank Research - 13 Feb 2023