Review

• Star’s 9MFY24 core net profit of RM9.8mn came below ours and consensus full-year estimates at 61% and 60%, respectively. This is mainly due to lower-than-expected performance from the property development & investment segment with lower-than-expected progress billings from the Star Business Hub project.

• Print, Digital and Events: Revenue fell by 6.1% YoY with a LBT of RM0.9mn in 3QFY24, compared to RM0.7mn PBT recorded in 3QFY23. This decline was primarily driven by lower advertising revenue in line with softer advertising spend faced by the industry.

• Radio Broadcasting: Revenue increased by 35.9% YoY with a PBT of RM0.9mn in 3QFY24, up from LBT of RM1.1mn in 3QFY23. The increase was attributed to higher revenue generated from commercial airtime, sponsorship and digital revenue.

• Property Development & Investment: Revenue increased 161.4% YoY to RM8.9mn with a PBT of RM2.8mn in the 3QFY24, a significant improvement compared to RM3.4mn in revenue with a PBT of RM0.5mn in 3QFY23. This growth was driven by higher progress billings from the Star Business Hub project and higher property leasing income.

• Meanwhile, Star maintained a solid balance sheet with a robust net cash position of RM359.3mn or 49.6sen/share (+1.6% QoQ, -1.2% YoY) and zero borrowings.

Impact

• We have revised our FY24/FY25/FY26 earnings estimates downward by 11.0%/14.9%/16.2%, respectively, to account for the lower-than-expected earnings from the Star Business Hub project.

Outlook

• In the near term, we expect Star’s core print and radio broadcasting segments to continue facing challenges due to persistent macroeconomic headwinds, such as inflationary pressures, which have led advertisers to be more conservative with their marketing budgets. However, we anticipate a stronger performance in 4QFY24 compared to 3QFY24, driven by an increase in advertising spending during the year-end festive period.

• Additionally, we maintain a cautiously optimistic outlook on the sustainability of Star’s property development segment, supported by further sales recognition from the Star Business Hub project and improved occupancy rates in its investment properties. We also view potential mergers and acquisitions as a viable avenue for Star to broaden its revenue base.

Valuation & Recommendation

• Corresponding to our earnings downgrade, our TP for Star is revised downward to RM0.41 (previously RM0.44) based on a P/BV of 0.4x CY25F BV, which is aligned with the stock’s 5-year P/BV, and with an ESG Premium of 3%. Downgrade from Hold to Sell.

• We view a stronger-than-anticipated recovery in adex and positive momentum in the group's property development initiatives as key catalysts for a potential rerating of the stock.

Source: TA Research - 20 Nov 2024