STAR's 9MFY24 results surpassed our expectation, but disappointed consensus. Increased unit sales and steady progress billings from the Star Business Hub (SBH) propel earnings to expand almost 5-fold, effectively offsetting losses at the print segment. We raised our FY24F earnings by 7% but maintain our TP of RM0.45 and MARKET PERFORM call.

Exceeded our expectation but missed consensus. 9MFY24 core net profit of RM9.2m outpaced our expectation at 86% of our full-year forecast, but underwhelmed consensus at 57% of the full-year estimate. The earnings beat vis-à-vis our forecast was driven by lower-than-expected losses at the print, digital & events (PDE) segment due to lower cost overlays.

Star Biz Hub the primary earnings anchor. 9MFY24 revenue expansion (+13% YoY) was mainly driven by SBH on the back of increased unit sales and construction progress. The RM130m industrial project consists of warehouses, factories and office complexes (4 semi-detached and 1 detached) at Bukit Jelutong, Shah Alam. We expect the project to remain on track for its targeted completion in 1QFY25.

The surge in 9MFY24 revenue drove an almost 5-fold YoY expansion in bottomline. Bumper pretax profit of RM15m at the property development & investment segment more than compensated for the steep RM7m pretax loss at the PDE segment. The latter was dragged by reduction in marketing spend by its clients, likely tied to consumer boycotts of major international brands due to the Gaza conflict. This aligns with a 4% YoY decline in 9MCY24 adex for STAR's daily newspaper publication, as reported by Nielsen data.

To a smaller extent, STAR's YTD bottomline growth was boosted by improved contribution from the radio broadcasting segment due to increased commercial airtime, sponsorship and digital revenue.

QoQ, STAR's earnings declined by 67% as 2QFY24 was boosted by chunky progress billings from additional units sold. On a positive note, the QoQ decline in bottomline was partially cushioned by: (i) narrowed pretax loss at the PDE segment, and (ii) close to 5-fold expansion in pretax profits at the radio broadcasting.

Anticipate major bump to cash coffers in 4QFY24. We expect STAR to recognize a one-time gain of RM50m in 4QFY24 following the resolution of long-standing legal disputes with JAKS. This gain pertains to a land sale by STAR in Section 13, Petaling Jaya, to JAKS for RM135m. The sale was originally structured with JAKS fulfilling the consideration via the construction and transfer of an office tower (Tower A). However, project delays led STAR to invoke JAKS's bank guarantee (BG) of RM50m. To resolve the dispute, JAKS has agreed to: (i) pay STAR RM5m within one year, and (ii) deliver the land title for Tower A within three years, where late payment interest penalties apply.

Forecasts. We tweak our FY24F earnings by 7% to account for lower overheads at the PDE segment.

Valuations. We also keep our TP of RM7.53 based on unchanged 0.55x FY25F P/NTA. There is no change to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment Case. As SBH's sales gain momentum, we believe STAR is increasingly likely to capitalize on its land bank by developing new projects. Recall that the group owns valuable industrial and commercial properties in Penang and Perak. This also suggests the potential for future dividend payouts once STAR is able to monetize its assets. However, earnings outlook on its print and radio business remains murky due to: (i) the ongoing shift in audience interest toward digital media, and (ii) STAR's legacy high-cost base associated with traditional media operations (eg. newsprint, radio transmitters). Maintain MARKET PERFORM.

Key risks to our call include: (i) continued adex market share rout for newspapers on the back of heightened competition with digital and social media as well as key opinion leaders, (ii) sustained glut in commercial properties allude to weak rental demand for office assets, and (iii) its high cost structure, which includes expensive newsprint costs and radio broadcasting fees that drag on margins.

Source: Kenanga Research - 20 Nov 2024