1QFY21 core LATAMI of RM13.7m came below ours/consensus full-year expectations. YoY, core LATAMI dropped by 283% as lower top-line contribution in 1QFY21 could not support operating costs resulting in overall PBT margin falling to -33% from -5% in 1QFY20. With the implementation of MCO 3.0 in 2QFY21, we believe the group’s top-line will continue to be affected moving forward. With no immediate earnings catalysts in place, we are keeping our UNDERPERFORM rating to the stock but with a lower TP of RM0.280.

1QFY21 weaker than expected. 1QFY21 recorded an adjusted LATAMI of RM13.7m which came in below ours/consensus full-year LATAMI expectations of RM9.8m and RM16.4m respectively. The negative deviation is mainly due to lower revenue from the print segment. No dividend was declared as expected.

YoY, revenue in 1QFY21 fell by 35% to RM42.6m mainly due to the print segment registering lower revenue as the re-implementation of MCO in 1QFY21 negatively impacted the top-line. However, it is noted that the increase in digital advertisement, growth in marketing and paywall subscription revenue resulted in digital revenue rising by 17% YoY. Due to the Covid-19 SOPs in place there were lower take-up rates for events, thus, the segment’s revenue fell by 60%. Comparatively, the radio segment stood firmly as it only fell by 2% despite MCO 2.0 in place. All in, STAR recorded a core LATAMI of RM13.7m (-283%).

QoO, 1QFY21 revenue dropped by 16% owing to a 20% decline in the print segment which was affected by the reasons mentioned above. Similarly, the drop in revenue resulted in core LATAMI expanding by 137% from a LATAMI of RM5.8 in the previous quarter to a core LATAMI of RM13.7m in 1QFY21.

Outlook. Of late STAR has launched several digital initiatives and will continue to focus on new technologies and analytics to expand its revenue beyond its traditional print segment (e.g. STAR is focusing on launching its digital educational vertical “e-kuntum” in 2QFY21). However, it is noted as the digital competition intensifies, STAR’s digital initiatives have yet to offset the decline in income from the traditional print segment. Moreover, with MCO re-imposed in 2QFY21, we anticipate the group’s top-line to be affected moving forward as 70% of the group’s revenue comes from the print segment.

Post results, we slash FY21E and FY22E earnings by 311%/195%, respectively, as we anticipate the group’s revenue and margins to be affected moving forward. Despite the group undertaking cost rationalisation exercises last year, we note that the print and digital PBT margin is still weak at -38% compared to -8% in 1QFY20.

Maintain UNDERPERFORM with a lower TP of RM0.280 (previously RM0.295) based on an unchanged P/NTA of 0.3x (-1SD below mean level). With no immediate earnings catalysts in place, we are keeping our UNDERPERFORM rating on the stock. Given the group’s revenue that still relies heavily on traditional media channels and the slow growth of their digital initiatives, we believe this could pose a huge challenge for the group to return to the black. Key risks to our call include: (i) higher-than-expected adex revenue, and (ii) better-than-expected margins following various cost initiative plans.

Source: Kenanga Research - 27 May 2021