1HFY21 core LATAMI of RM18.8m came within our but worse than consensus full-year expectations. YoY, core LATAMI improved by 38% after adjusting for a one-off impairment cost incurred in 1HFY21. We believe with the gradual reopening of the economy, the group may start to pick up pace in 2HFY21. As for now, with no immediate earnings catalysts in place, we are keeping our UNDERPERFORM rating to the stock with an unchanged TP of RM0.280.

1HFY21 within expectations. LATAMI of RM18.7m was registered in 1HFY21 which came in within our full-year LATAMI expectations of RM40.35m (46%). But against the street’s full year LATAMI of RM33.4m 1HFY21 loss seems to have come in worse than consensus expected. No dividend was declared as expected.

YoY, revenue dropped by 8% from RM97.3m in 1HFY20 as 1QFY20 was the only quarter unaffected by the pandemic and lockdowns, thus, it helped to bump up the revenue of 1HFY20. With the continuous movement controls in place since the start of 2021, the event and exhibition segment dropped by 61% in revenue. On the other hand, radio broadcasting was up by 56% due to higher revenue from radio advertising. This is in line with the radex data gathered by Nielson which shows radex increasing by 33% YoY. The group saw a one-off impairment of RM32.66m on its property, plant and equipment. Adjusting for this, 1HFY21 saw its core LBIT improving by 38% to RM18.0m as its past cost rationalisation exercises proved to be fruitful. This translated to a core LATAMI of RM18.8m (vs 1HFY20: RM30.1m).

QoQ. 2QFY21 saw a 10% improvement in revenue which was mainly due to higher revenue from print, a 17% increase in digital revenue owing to an increase in digital advertising, growth marketing and paywall subscription, and a 10% increase in radio advertising. Event and exhibitions declined by 100%, registering no revenue for 2QFY21 due to the abovementioned reasons. Correspondingly, core LATAMI improved by 63% to RM5.1m with minor improvements to cost margins, mainly from the Radio segment.

Strengthening digital initiatives. As the group is focused on expanding its digital transformation initiatives and strategies, they have launched several initiatives in 2021. For instance, “Subscribe and Win” campaign was created to increase online subscribers which resulted in mStar reaching a peak of 8.1m unique visitors in March as the campaign successfully drew more Malay consumers to the site. Moreover, the group launched e-Kuntum in 2Q which focuses on digital education, thus, driving interested student to the site. The group understands the need to invest in the digital space in order to keep pace with continuous change in market needs and therefore plans on introducing more fresh products and restructuring existing ones. For now, we believe media outlets could progressively gain traction once more when economic activity picks up, which we reckon would materialise in the later parts of 2HFY21.

Post results, we leave our FY21E/FY22E earnings unchanged.

Maintain UNDERPERFORM with an unchanged TP of RM0.280 based on a P/NTA of 0.3x (-1SD below mean level). Although the group continues to report QoQ increase in its digital revenue, the digital initiatives have yet to offset the losses incurred in the print and digital segment which is currently being dragged down due to the weakness in the print segment. With no immediate earnings catalysts in place, we are keeping our UNDERPERFORM rating on the stock.

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 Aug 2021