Investment Highlights

• We maintain our HOLD recommendation on Media Chinese International (MCIL) with an unchanged fair value of RM0.20/share pegged to a P/B multiple of 0.5x. We cut FY20F–FY22F earnings by 1–5% as the travel segment performance is expected to normalize slightly following FY19’s performance which had benefited from the FIFA World Cup tours.

• We attended MCIL’s 4QFY19 analyst briefing and came away with the following key highlights:

• Increasing digital contribution to cushion decline in print: MCIL has seen encouraging growth in its digital business which contributed approx. 8% in FY19 mainly driven by cross-platform advertising strategies which combined channels from events, print and digital media. The group anticipates that the pickup in digital will be able to offset decline in print for Malaysia in 1–2 years.

• Strategic updates for Malaysian operations: Besides its cross-platform strategy, MCIL had launched regional subsites for China Press in Johor in 2016 and in Kuala Lumpur, the northern region and east coast in 2018, enabling the group to offer localized advertising solutions as well.

• Strategic updates for Hong Kong operations: To expand its revenue-generating scope, MCIL is focusing on education publications, developing its own influencer base and setting up Ming Pao’s creative arm, WAW Creation, to provide a diversified array of professional services as a one-stop-solution to advertisers with omnichannel delivery.

• Cautiously optimistic outlook on travel segment: After commendable progress in FY19, MCIL will continue to offer attractive European tour packages and niche offerings to sustain the segment’s positive performance. We note that competitive airfares offered by airlines would pose a threat to the segment’s margins, further exacerbated by a behavioral shift in consumers towards self-planning and less preference for fixed tour packages.

• No more significant impairments anticipated in the next 3–5 years: Following the provision for impairment of goodwill relating to Sin Chew Media of US$21mil in FY18, MCIL’s closing net book amount for goodwill stood at US$16mil. Subsequently in FY19, provisions of US$15mil had been made with no further significant impairment expected moving forward. Similarly, the group guided no further major impairments for property, plant and equipment (PPE) to come.

Source: AmInvest Research - 30 May 2019