STAR’s 9MFY22 results beat expectations as it continued to benefit from the reopening of the economy with improvement seen across its major media channels. We raise our FY22F and FY23F net profits by 29% and 64%, respectively. Upgrade to OUTPERFORM from MARKET PERFORM with an unchanged asset-based TP of RM0.335 as we believe value has emerged after the recent weakness in its share price.

Beat our forecast. STAR’s 9MFY22 core net profit already met our full year forecast and made up 79% of the full-year consensus estimate. The variance against our forecast came largely from reduced operating costs (-19.5% YoY excluding a one-off reversal of RM50.1m) and better-than expected performance of the radio segment.

YoY. 9MFY22 revenue grew 17.2% as the reopening of the economy continued to benefit the group across most major segments. The print and digital segment remained marginally profitable, contributing RM0.5m vs. RM52.4m losses during 9MFY21. Radio continued to contribute the lion’s share of earnings, growing >8x YoY as advertisers continued to be drawn to the platform following the return of normal travel. Elsewhere, the event segment remained marginally loss-making but losses narrowed 31.6% YoY.

Overall, the group continued its earnings momentum as PATAMI sustained >100% growth. Margins continued to benefit from the improved revenue across its major segments as well as improved cost optimisations.

QoQ. 3QFY22 revenue remained relatively flat, growing marginally by 0.8% QoQ. However, EBIT decreased 8.9% due to rising cost of print resulting from unfavourable MYR/USD exchange rate. Overall, PATAMI still grew 22.6% on a minor tax credit.

Outlook. The long-term outlook for the group remains mixed given the continued trend of advertisers favouring digital media over traditional channels. Nielsen statistics have shown that digital media is able to both draw and retain an increasing amount of overall advertising expenditure. The group’s online publication still commands less than 1% of overall digital as of 3QCY22 and the transition continues to appear long and winding.

Conversely, the group’s performance during 9MFY22 has shown that they have successfully capitalised on the improving advertiser sentiment following the reopening of the economy. If the group is able to maintain current levels of performance moving forward, its near-term prospects may be brighter as the improved advertiser sentiment is expected to continue into 4QFY22.

Post results, we raise our FY22F/FY23F net profit by 29%/64% to reflect the better margins and improved performance from the radio segment.

We continue to like STAR for its: (i) prime position to capitalise on rebounding advertising expenditure, (ii) leading position as the number one English newspaper in Malaysia, and (iii) online presence as the largest single website publication based on adex under our coverage. While long term catalysts for the group may be limited, its performance during 9MFY22 is encouraging and we believe value has started to emerge.

Upgrade to OUTPERFORM. We maintain our TP of RM0.335 based on 0.4x P/NTA, in line with the sector’s historical average. However, we upgrade its rating to OUTPERFORM as we believe the group has positive near-term prospects. 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 - 23 Nov 2022