STAR’s 1HFY22 results beat expectations as the group’s cost management successfully cut operating expenses by 28%. The group saw improvements in its core segments of print, digital as well as radio but overall outlook remains subdued. We raise our FY22F and FY23F net profit forecasts by 34% and 9%, respectively, but maintain our asset-based TP of RM0.335 and MARKET PERFORM call.

Beat forecasts. STAR’s 1HFY22 results beat expectations, accounting for 83% of our, and 67% of consensus, estimate. The variance against our forecast came largely from significant savings in operating expenses (-28% YoY).

1HFY22 results highlights. Revenue grew 17.9% as the group benefitted from the reopening of the economy across their print, digital and radio segments. Print and digital returned to profitability as earnings grew >100%, although absolute earnings were negligible. Radio was the largest contributor to earnings as it grew more than 6x as the segment benefitted from the return of drivers to the road. The events segment still showed little signs of life, reporting a minor loss.

Overall, PATAMI more than doubled and the group stayed in the black for a second quarter in a row. Margins improved on the back of strong cost rationalisation but overall earnings remained muted as core revenue barely covered operating expenses.

Outlook. While the group returned to profitability in 1HFY22, its outlook remains subdued. On a broader market level, advertisers are shifting towards digital media as adex spending in the segment continues to grow. While the group does have a sizeable digital presence via their online publications, they captured less than 1% of overall digital adex in the 2Q based on Nielsen statistics. Combined with the printed media segment which margins are expected to tighten with the increase in cost of distribution and raw materials (i.e. paper) due to global supply chain disruptions, we expect its recovery road to be long and winding.

Post results, we raise our FY22F/FY23F net profit by 34%/9% to reflect the stronger 1H and also to account for better cost savings.

Maintain MARKET PERFORM and TP of RM0.335 based on 0.4x P/NTA, in line with the sector’s historical average. We make no adjustment based on a 3-star ESG rating as appraised by us.

Key risks to our call include: (i) accelerated demise of the traditional media, (ii) high newsprint cost, (iii) unfavourable forex movements, (iv) non-renewal of operating licenses, and (v) slow pace of digitalisation.

Source: Kenanga Research - 24 Aug 2022