STAR’s FY22 results disappointed, weighed down by significant increase in printing costs in 4QFY22. While cutting our FY23F net profit by 31%, we increasingly believe it’s no longer tenable to value STAR at an excessive discount to net asset value as it has turned the corner. We maintain our TP of RM0.335 and OUTPERFORM call.

Below expectations. STAR’s FY22 results fell short of both our forecast and consensus estimates by 21`% each. We believe the variance against our forecast came largely from a significant increase in printing costs in 4QFY22.

YoY. Revenue grew 16% following the reopening of the economy. On a segmental basis, print and digital media contributed RM0.9m in profit before tax vs. a loss of RM52.4m in FY21. Radio continued to benefit greatly from the economy reopening, growing five-fold and contributing to the bulk of the group’s profit. However, its loss-making events business saw little signs of life despite the economy reopening.

Overall, the group reported a core net profit of RM7.2m as it managed to remain profitable for the entirety of FY22. However, earnings growth slowed during 4QFY22 following a rise in costs associated with the printing segment.

QoQ. 4QFY22 revenue grew 8.2%, largely due to contributions from the print and digital (+6.4% QoQ) and radio (+12.7% QoQ) segments. However, profit before tax fell 12.7% following an 11% increase in operating costs. This increase was largely due to unfavourable MYR/USD exchange rates driving up the printing cost.

Overall, core net profit plunged 88% due to the increased costs as well as the recognition of deferred tax expenses.

Outlook. While the group managed to stay in the black for FY22, its near term prospects are slightly cloudier going into FY23. While supply chain disruptions and MYR weakness are expected to ease in FY23, significant recovery could only be seen during 2HFY23. As such, costs could remain elevated for the printed segment which continued to bite into margins throughout FY23. On a brighter note, the radio segment is expected to do well in FY23 as the nation returns to normalcy. The segment saw a significant increase in earnings post economy reopening and we expect it to continue contributing positively to earnings.

Looking forward in the long-term, the group continues to face the challenge of transitioning to digital media. While the group does maintain the largest single website publication under our coverage, it still commands <1% of digital adex. Given the sector-wide trend towards the platform, digital transition continues to be a major catalyst for the sector which the group has yet to fully capitalise on.

Post results, we lower our FY23F net profit by 31% to account for higher costs associated with the newspaper print. We also introduce our FY24F numbers.

Source: Kenanga Research - 22 Feb 2023