• Downgrade to HOLD (TP: RM0.43). Star’s 9MFY23 top-line rose by +2.5% YoY, in-line with our expectation accounting for 72.1%. Nevertheless, the group’s core net profit of RM2.1mn (-69.5% YoY) was below both our and consensus expectations, accounting for 35.5% and 41.6% respectively. Star’s 3QFY23 revenue grew by +0.9% YoY attributed to higher contribution from property development & investment segment. However, the group’s core net profit declined by -94.0% YoY, primarily due to higher operating costs. Moving forward, we remain wary of the recent upsurge in the value of the USD, the currency that sets the newsprint prices. Following the subdued bottom-line performance in 9MFY23, we adjusted our earnings estimate accordingly. Downgrade our BUY rating to HOLD with a lower TP of RM0.43 (from RM0.45), based on 0.57x PBR (5-year average historical forward PBR) pegged to 2024 BVPS of 0.75sen.

• Key highlights. In 3QFY23, Star’s revenue grew by +0.9% YoY, driven by growth in the property development and investment segment mainly attributed to the launch of the Star Business Hub project by the group. Nonetheless, the group’s core net profit declined by -94.0% YoY due to higher operating costs as well as the weakening of MYR against USD. On a QoQ basis, there was a -5.3% decline in revenue, totalling RM54.9mn, primarily attributed to the reduction in revenue across the print, digital, events, and radio segments.

• Earnings Revision. We revised our FY23-25F earnings forecast higher by - 53%, -29%, and -25% respectively, resulting in a net profit of RM2.8mn, RM5.9mn, ands RM10.0mn (Table 2). This revision is due to higher operating cost assumptions for the respective fiscal years.

• Outlook. As the print segment accounts for roughly 80% of the group's revenue, there is a potential for some margins erosion in the medium term. In the current scenario of a weakening MYR and heightened inflation, consumer spending might adopt a more cautious stance, leading to possible increases in operating expenses and reductions in advertising expenditures.

Source: BIMB Securities Research - 22 Nov 2023