Review

• Star’s 1HFY24 net profit of RM7.3mn (+278.1% YoY) came above ours and consensus full-year estimates at 66% and 189%, respectively. This is mainly due to better-than-expected performance from the property development & investment segment with higher progress billings from the Star Business Hub project, which contributed 34.6% to their Q2 revenue.

• Print, Digital and Events: Revenue fell by 8.3% YoY with a LBT of RM6.1mn in 1HFY24, compared to RM0.6mn PBT recorded in 1HFY23. This decline was primarily driven by reduced client spending on marketing, reflecting the challenging business environment.

• Radio Broadcasting: Revenue dropped by 9.2% YoY with a PBT of RM0.8mn in 1HFY24, down from RM1.2mn in 1HFY23. This decline was due to lower revenue from commercial airtime, driven by heightened market competition.

• Property Development & Investment: Revenue increased 622.8% YoY to RM30.6mn with a PBT of RM12.0mn in the 1HFY24, a significant improvement compared to RM4.2mn in revenue with a LBT of RM0.1mn in 1HFY23. This growth was driven by increased progress billings from the Star Business Hub project.

• Meanwhile, Star maintained a solid balance sheet with a robust net cash position of RM353.7mn or 48.8sen/share (-1.1% QoQ, -3.5% YoY) and zero borrowings.

Impact

• We have revised our FY24F and FY25F earnings estimates upward by 47.4% and 7.1% to RM16.2mn and RM17.7mn, respectively to account for the actual 2QFY24 results and the faster-than-expected earnings from the Star Business Hub project. Additionally, we have introduced an FY26 earnings forecast of RM20.0mn.

Outlook

• In the near term, we anticipate that Star’s core print and radio broadcasting segments will remain subdued due to ongoing macroeconomic challenges, including inflationary pressures, which have made advertisers cautious about their marketing spend. However, we expect a stronger 4QFY24 driven by increased advertising expenditure (adex) during the year-end festive season. Additionally, we are cautiously optimistic about the sustainability of Star’s property development segment, with further sales recognition from the Star Business Hub project and higher occupancy rates for its investment properties. We also foresee potential mergers and acquisitions as a strategy for Star to diversify its revenue streams.

Valuation & Recommendation

• Corresponding to our earnings upgrade and incorporating an ESG Premium of 3%, our TP for Star is revised upward to RM0.44 (previously RM0.36) based on a P/BV of 0.45x CY25F BV. However, we maintain our Sell recommendation on the stock due to its unfavourable risk reward potential.

• 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 - 21 Aug 2024