Review

• Star’s 9MFY23 net profit of RM2.0mn (-69.6% YoY) came below ours and consensus full-year estimates at 48.7% and 39.7%, respectively. On our end, results disappointed due to weaker-than-expected margins on the back of higher-than-expected costs.

• YoY. 9MFY23’s net profit sank 69.6% YoY to RM2.0mn despite higher revenue, as i) the print segment (PBT: RM1.2mn; -62.7% YoY) was hit by higher newsprint costs and the strengthening of the USD versus Ringgit, and ii) the radio segment (PBT: RM0.1mn; -98.0% YoY) suffered from lower commercial airtime. Weakness from the print and radio segments was cushioned by the property segment’s (PBT: RM0.4mn) turnaround, driven by the launch of the Star Business Hub property development project. Revenue grew 2.5% YoY to RM164.9mn, underpinned by i) the launch of the Star Business Hub property development project and ii) the increased cover price of The Star newspaper.

• QoQ. 3QFY23’s net profit declined 92.9% QoQ to RM0.1mn, dragged by the radio segment, which slipped into the red on lower commercial airtime. Losses from the radio segment more than offset improved print, digital, events, and property development profitability.

• Meanwhile, Star maintained a solid balance sheet with a robust net cash position of RM363.6mn or 50.2sen/share (-0.8% QoQ, +2.7% YoY) and zero borrowings.

Impact

• We have lowered our FY23F/FY24F/FY25F earnings estimates by 40.7%/74.1%/68.3% as we i) raised cost assumptions to reflect actual 3QFY23 results, ii) conservatively lowered adex in FY24F/FY25F to reflect the anaemic adex outlook.

Outlook

• In the near term, we expect Star’s core print and radio broadcasting segments to remain subdued amid lingering macroeconomic headwinds, including inflationary pressures, which have kept advertisers cautious about marketing spend. However, we view a sequentially stronger 4QFY23 on higher adex amid seasonal year-end festivities. Meanwhile, we remain watchful on the progress of Star’s property development segment. Recall that Star’s 5-year target is for 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 RM0.36 (previously RM0.365) based on a P/BV of 0.4x CY24F BV, which is aligned 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 - 22 Nov 2023