Star’s 4Q22 core LATAMI of -RM488k (3Q22: RM2.6m; 4Q21: RM11.8m) brought FY22’s sum to RM6.5m (FY21: -RM10.5m), which was below our and consensus full year estimates at 73% and 66%, respectively. The negative deviation was due to higher operating expenses caused by the stronger USD as well as higher taxation. In view of the results shortfall, we lower our FY23/24 forecasts by -39.8% and -40.2%, respectively. Maintain HOLD with an unchanged TP of RM0.31 pegged to a P/NTA target of 0.35x based on FY23 NTA/share. We remain cautious on the group’s prospects in view of still elevated newsprint costs as well as a potential slowdown in adex. Nonetheless, Star’s NCPS of 48.4 sen should provide downside support to its share price.

Below expectations. Star’s 4Q22 core LATAMI of -RM488k (3Q22: RM2.6m; 4Q21: RM11.8m) brought FY22’s sum to RM6.5m (FY21: -RM10.5m), which was below our and consensus full year estimates at 73% and 66%, respectively. The negative deviation was due to higher operating expenses caused by the stronger USD as well as higher taxation. FY22 core PATAMI was arrived at after adjusting for EIs consisting of net forex loss and gain on disposal of PPE amounting to RM388k.

Dividend. None (4Q21: None). FY22: (FY21: None).

QoQ. Revenue increased by 8.2% as all segments recorded improvements (print and digital: +2.8%, radio: +8.0% and event: RM511k vs zero revenue in 3Q22). Despite the improvement in revenue, PBT declined by -12.7% due to the strong USD which caused newsprint cost to increase. Because of this, Star recorded a core net loss of -RM488k for the quarter (vs. core net profit of RM2.6m in 3Q22).

YoY. Revenue increased by 12.6% due to improvements from print and digital (+16.4%) and radio (+24.1%) but partially offset by event (-67.8%). The improvements in print and digital and the radio segments were due to higher advertising bookings and commercial airtime. However, the group recorded a core net loss for the current quarter due to the reasons mentioned in the QoQ paragraph (vs. +RM11.8m SPLY).

YTD. Revenue increased by 16.0% due to print and digital (+15.2%) and radio (+30.3%) while partially offset by event (-70.6%). The improvements in the print and digital and radio segments were due to higher advertising revenue, in line with the national growth in adex. Consequently, Star recorded core net profit of RM6.5m for FY22 (vs. -RM10.5m in FY21).

Outlook. Star’s performance for 4Q22 was negatively impacted by higher operating costs largely due to the strength of the USD during the period, which increased newsprint costs and compressed margins. On the bright side, the group’s radio segment had a commendable performance, being the largest contributor to its FY22 earnings, accounting for 82.3% of full year PBT. Should advertising take a downturn in view of the uncertain economic environment, alongside USD strength, we are doubtful on the group’s ability to maintain on its path to recovery.

Forecast. In view of the results shortfall, we lower our FY23/24 forecasts by -39.8% and -40.2%, respectively.

Maintain HOLD with an unchanged TP of RM0.31 pegged to a P/NTA target of 0.35x based on FY23 NTA/share. Despite returning to the black in FY22, Star’s most recent quarter’s performance is evidence of the persistent challenging operating landscape that the group faces, clouding its earnings visibility. Nonetheless, its current share price is trading at a 36% discount to its NCPS of 48.4 sen, which should provide downside support to its share price. Moreover, Star’s net cash position of RM350.6m will also allow the group to capitalize on M&A opportunities should it arise.

Source: Hong Leong Investment Bank Research - 22 Feb 2023