Investment Highlights

• We downgrade our recommendation on Media Chinese International (MCIL) to a HOLD from a BUY with a lower fair value of RM0.24/share pegged to a lower P/B multiple of 0.5x. We reduce FY19F–FY21F earnings by 16–19% amid worse-than-expected deterioration in its publishing and printing segment.

• MCIL’s 3QFY19 core profit came in below our expectations at RM7mil, bringing 9MFY19 net profit to RM32mil. This accounts for 67% of our full-year forecasts and 74% of consensus estimates.

• 9MFY19 net profit declined 9% YoY despite 4% higher revenue mainly due to weaker performance across MCIL’s publishing and printing segment in all regions despite improvements in its travel segment. We note that the MYR strengthening against the USD by 4% YoY has had a positive currency translation impact on the group’s turnover and PBT. However, higher newsprint prices that rose 16% YoY had impacted group margins.

• Segmental review:

o Publishing and printing segment:

• Malaysia & SEA: Both revenue and PBT declined 5% and 13% respectively amid dampened adex spend and higher newsprint prices. This was despite increases in the cover price of MCIL’s Malaysian publications since March 2018 and cost savings from production, distribution and manpower rationalization.

• Hong Kong, Taiwan & China: Both revenue and PBT fell 3% and 66% respectively due to impacted ad spend amid a softening Hong Kong’s property market, slowdown in retail sales towards end-2018 and surging newsprint costs.

• North America: Both revenue and PBT dropped 15% and 21% respectively due to weaker economic conditions. MCIL also closed down its New York operations in November 2018 with no significant impact to the group’s financial position.

o Travel and travel-related services: Revenue surged 28% while PBT soared by 92% driven by higher demand for European tours, tours to Russia for the FIFA World Cup, and specially designed tours to popular travel destinations in Asia.

• Overall, we believe MCIL’s prospects remain bleak due to: (i) declining newspaper circulation with the rising availability of digital content; (ii) subdued adex outlook against the backdrop of weaker consumer sentiment; and (iii) growth of digital revenue remains insufficient to offset the decline in print media. However, we believe MCIL is fairly valued with its negative prospects priced in.

Source: AmInvest Research - 26 Feb 2019