Review

• Star’s 1HFY23 net profit of RM1.9mn (-55.5% YoY) came below ours and consensus full-year estimates at 27.1% and 26.8%, respectively. On our end, results were missed due to weaker-than-expected adex from the radio broadcasting segment.

• YoY. 1HFY23’s net profit sank 55.5% YoY to RM1.9mn despite higher revenue due to: i) the radio broadcasting segment’s lower adex and ii) the print segment’s higher costs including, newsprint costs. Revenue grew 3.3% YoY to RM110.0mn, driven by: i) the property development segment’s launch of the Star Business Hub and ii) the print segment’s cover price increase and higher adex.

• QoQ. 2QFY23’s net profit declined 30.5% QoQ to RM0.8mn, mainly due to weaker profitability from the print, digital, events, and radio broadcasting segments, as well as higher taxes. At the PBT level, only the property development and investment segment reported improved performance (2QFY23 PBT: RM0.4mn versus 1QFY23 LBT: RM0.5mn).

• Meanwhile, Star maintained a solid balance sheet with a robust net cash position of RM366.4mn or 50.6sen/share (-0.6% QoQ, +5.9% YoY) and zero borrowings.

Impact

• We have cut our FY23F/FY24F/FY25F earnings estimates by 42.7%/21.7%/15.2% upon lowering radio adex to reflect actual 2QFY23 results.

Outlook

• Into 2HFY23, we expect Star’s profitability to be anchored by its property development and investment segment. As for its core print and radio broadcasting segments, we expect subdued performance, albeit cautious of downside risk to adex amid lingering macroeconomic headwinds, including inflationary pressures. Recall that as part of Star’s business diversification efforts, the group has forayed into property development via Star Business Hub, Bukit Jelutong, an industrial freehold development. Star’s 5-year target is revenue at 34% media, 33% property, and 33% new businesses.

Valuation & Recommendation

• Corresponding to our earnings downgrade, our TP for Star is lowered slightly to RM0.365 (previously RM0.37) based on a P/BV of 0.4x CY24F BV, which aligns with the stock’s 5-year P/BV. Maintain Sell.

• We view a stronger-than-expected recovery in adex and traction with the group’s property development endeavours as key rerating catalysts for the stock.

Source: TA Research - 23 Aug 2023