STAR’s 1HFY23 results missed expectations due to higher-than expected newsprint costs. On an encouraging note, the launch of Star Business Hub (SBH) led to QoQ turnaround at its property development segment. We cut our FY23-24F earnings by 24% each, lower our TP by 3% to RM0.54 (from RM0.555) but maintain our OUTPERFORM call.

Below expectations due to cost drag. 1QFY23 core net profit came in at 32% and 26% of our full-year forecast and the full-year consensus estimate, respectively. The shortfall versus our forecast largely emanated from higher-than-expected newsprint costs.

Boost from launch of Star Business Hub.1HFY23 revenue expansion of 4% was mainly attributed to: (i) cover price increase and higher print advertising from The Star newspaper, (ii) maiden property sales proceeds from the launch of the SBH project at Bukit Jelutong, Shah Alam, and (iii) higher property occupancy rates.

However, core net profit declined by 2.3% YoY mainly due to lower contribution from the radio broadcasting segment. This was attributed to seasonally softer commercial airtime in 2QFY23. Additionally, to a smaller extent, higher newsprint costs exacerbated the bottomline decline.

The above more than offset a spike in contribution from the property development segment following a turnaround in 2QFY23. This was driven by the launch of SBH which enabled this segment to deliver pretax profit of RM400k in 2QFY23 (1QFY23: RM500k loss). Following this boost, segmental losses in 1HFY23 narrowed significantly to RM100k (1HFY22: RM2.1m loss).

Property segment may prop earnings. We are encouraged by the sales traction from SBH launch. To recap, the project has an estimated GDV of RM130m and consists of five office complexes cum warehouses located in Bukit Jelutong. This is expected to cushion drag emanating from: (i) escalated newsprint costs due to an inflationary cost environment, and (ii) soft adex outlook as macro-economic headwinds weigh on consumer sentiment. Nevertheless, we believe that STAR will deploy its war chest to accelerate its business diversification as part of its transformation plan. This will be the case, particularly if SBH achieves better-than-expected sales momentum. Hence, this will catalyse the company to develop its landbank, which includes valuable assets at Bayan Lepas, Penang and Shah Alam, Selangor.

Forecasts. We cut our FY23-24F net profit by 24% each to reflect higher newsprint costs and softer adex assumptions.

Following the cut in our forecasts, our TP is lowered to RM0.54 (from RM0.555) based on unchanged 0.7x FY24F P/NTA. Our valuation implies a discount versus the sector average to reflect STAR’s lower ROE versus sector leader MEDIA. There is no change to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Maintain OUTPERFORM.

Source: Kenanga Research - 23 Aug 2023