9MFY21 core LATAMI of RM22.8m came above our expectation but within consensus’. After adjusting for one-off reversal of compensation income, the group saw a 57% increase in LATAMI. With the lifting of lockdowns in 4QCY21, we believe the group will see an uptick in adex as well as the events segment. As for now, with no immediate earnings catalysts in place, we are keeping our UNDERPERFORM rating to the stock albeit with a higher TP of RM0.285.

9MFY21 above expectations. The group registered a LATAMI of RM22.8m which came above our full-year LATAMI expectation of RM40.35m (57%) but within consensus’ RM32.8m. No dividend was declared as expected.

YoY, 9MFY21 revenue declined by 7% to RM135.6m from RM145.5m in 9MFY20 due to higher revenue recorded in 1QFY20 pre pandemic and lockdowns. The print and digital segment fell by 9% as the lower revenue in 1QFY21 dragged down the segment’s YTD revenue. On the other hand, the radio segment grew by 34% thanks to higher revenue from commercial airtime. Moreover, the group saw a one-off reversal of compensation income of RM50.5m which was awarded in FY20 from the legal case with JAKS. Adjusting for this, 9MFY21 registered an improved core LATAMI of RM22.8m (57%).

QoQ, revenue remained flattish (-1%) due to a 2.3% increase in the print and digital segment revenue which was partially offset by the 19% drop in radio. This is in line with the radex data gathered by Nielson which shows radex slipping by 29% which we believe was due to the nationwide lockdown in 3QCY21. No surprise, the events and exhibitions remained weak due to the stringent lockdown in 3QCY21. All in, core LATAMI improved by 22% to a LATAMI of RM4m after adjusting for the above-mentioned one-off income reversal.

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 raise FY21E earnings by 30% on the back of the reopening of economic sectors in 4QCY21 which could see a surge in adex as well as events and exhibitions.

Maintain UNDERPERFORM with a higher TP of RM0.285 (previously RM0.280) based on a P/NTA of 0.3x (0.5SD 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 - 19 Nov 2021