Investment Highlights

• We maintain our HOLD recommendation on Media Chinese International (MCIL) with a lower fair value of RM0.20/share (previously RM0.24) pegged to a P/B multiple of 0.5x.

• We reduce FY20F–FY21F earnings by 10–14% as we anticipate that the operating environment for its print and publishing segments to remain challenging.

• MCIL’s 4QFY19 came in below expectations, recording a core net loss of RM2mil which brings FY19 core profit to RM29mil after stripping off one-off net losses mainly from the provision for the impairment of goodwill amounting RM62mil. The results missed our and consensus’ full-year estimates by 27%.

• FY19 core profit declined 53% YoY despite marginally higher revenue of 0.2% as EBIT margins were slashed in 4QFY19 due to weaker revenue across all segments seen for the quarter, and as one-off net losses due to provisions for the impairment of goodwill, PPE and intangible assets totaled -RM75mil in FY19 vs. -RM110mil in FY18.

• The weaker USD against the MYR but stronger USD against the CAD resulted in net positive currency impacts of RM10mil and RM7mil on the group’s turnover and LBT respectively.

• Segmental review:

o Publishing and printing segment:

• Malaysia & SEA: Despite revenue declining 9% due to weaker adex, LBT narrowed by RM3mil likely due to savings in all major operating costs, especially for labour and paper costs.

• Hong Kong, Taiwan & China: Revenue decreased by 2% as adex was impacted by a softening in Hong Kong’s property market and slowdown in retail sales towards end- 2018 while LBT was wider in FY19 compared with FY18 which included a RM11mil gain upon the listing of the group’s associate, Most Kwai Chung Ltd. Excluding this, segment LBT narrowed from RM7mil to RM3mil YoY due to cost savings.

• North America: The slower Canadian economy and weakening property market caused revenue to fall by 15% but its LBT lessened due to cost rationalization efforts.

o Travel and travel-related services: Revenue jumped 22% while PBT rocketed by 94% due to higher demand for European tours, tours to Russia for the FIFA World Cup in June-July 2018, and special tours to popular Asian travel destinations.

• At the PBT/LBT level, FY19 improved mainly due to positive contribution from its travel segment. However, we note that after excluding Hong Kong, Taiwan & China’s segment gain on the listing of its associate in FY18, the group’s overall publishing and printing segment LBT would be narrowed in FY19 mainly due to MCIL’s cost rationalization efforts across all regions.

• Although the group’s cost rationalization efforts have helped to improve margins, we believe that MCIL’s bleak prospects are expected to persist amid the challenging operating environment. Its somber outlook is mainly due to: (i) declining newspaper circulation amid the structural shift to digital; (ii) subdued adex outlook against the backdrop of weak consumer sentiment; and as (iii) growth of its digital revenue remains insufficient to offset the decline in print media. We maintain our HOLD recommendation on MCIL as we opine that its negative prospects have been fairly priced in. The group will hold an analyst briefing tomorrow where we expect updates on its outlook ahead.

Source: AmInvest Research - 29 May 2019