STAR’s FY23 results disappointed mainly due to cost and topline pressure at its media businesses. Moving forward, we are cautious of sustained losses due to loss in adex market share to digital media. We now project losses in FY24F, lower our TP by 40% to RM0.31 (from RM0.52), and downgrade our call to UNDERPERFORM (from OUTPERFORM).

The print segment finally cracked. FY23 core net loss of RM3.6m was below our full-year forecast of RM2.9m and the full-year consensus estimate. The shortfall versus our forecast was due to higher-thanexpected opex that led to pretax losses at the print, digital & events segment in 4QFY23. Core net profit excludes chunky disposal gain on investment property amounting to RM6.5m.

Property segment unable to uplift earnings. STAR’s FY23 topline growth (+1.5% YoY) was mainly driven by the property development and investment segment. This emanated from the launch of the Star Business Hub (SBH) project, and coupled with higher lease income from its portfolio of commercial assets. To a smaller extent, revenue received a boost from the print segment thanks to: (i) cover price increase, and (ii) higher adex from a new urban weekly publication, namely Majoriti 7 (launched in late- 2022).

However, FY23 bottomline slipped to the red (FY22: RM6.5m) as pretax profit plunged to near break-even levels at the radio broadcasting segment. This was mainly due to topline erosion (-19% YoY) that corresponded with the broader industry decline in FY23 radex (-5% YoY) (as reported by Nielson).

On top of that, FY23 losses were exacerbated by pretax loss at the print, digital & events segment. This was attributed to higher opex amidst flattish revenues. In addition, we believe that segmental costs were dragged by: (i) expensive newsprint expense, and (ii) stronger USD/MYR which led to higher wire service fees,

On the back of this, STAR slipped back into annual losses after turning around in FY22. This was despite the boost from: (i) lower effective tax rates, and (ii) improved contribution from the property segment.

Earnings headwinds from erosion in adex market share. Moving forward, we are wary of sustained losses at the print, digital & events segment due to topline weakness. We believe it would be challenging for this segment to turn around given the structural trend where interest is shifting into new media such a as: (i) streaming apps or websites (eg.Youtube, Spotify, Apple Music), (ii) mobile apps (e.g. Waze, Grab, CamScanner), and (iii) social media platforms (e.g. celebrity influencers, Instagram, TikTok, Facebook, X). Evidently, over the past 3 years, digital media’s adex market share has progressively inched up from 15.7% in 4QCY20 to 23.5% in 4QCY23. This was largely at the expense of newspapers which saw its share declining from 18.4% to 12.3% during this period. Given the consistent market share decline for newspapers, this suggests that its downtrend will likely prevail in the medium term.

Forecasts. We now project losses in FY24F to reflect higher opex at the print, digital & events segment. In addition, we introduce our FY25F numbers.

Our TP is reduced to RM0.31 (from RM0.52) following the cut in our forecasts, and as we lower our valuation to 0.4x FY24F P/NTA (from 0.7x). This implies a 20% discount versus the historical sector average of its peers (0.5x) to reflect STAR’s negative 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). Correspondingly, we downgrade our recommendation to UNDERPERFORM (from OUTPERFORM).

Key risks to our call include: (i) traction in efforts to transition to digital media and real estate monetization, (ii) earnings turnaround from successful cost cutting measures via its 5-year transformation journey, and (iii) surge in demand for its property development venture.

Source: Kenanga Research - 21 Feb 2024