Investment Highlights

• We maintain our HOLD recommendation on Media Chinese International (MCIL) but reduce our fair value to RM0.18/share (previously RM0.20/share), premised on an FY19 BV of RM0.41 pegged to a lower 1-year historical PB of 0.45x (previously 0.50x).

• MCIL’s registered a core profit of RM9mil in 1QFY20, accounting for 33% of our full-year forecasts and 35% of consensus’ estimates. Despite this, we consider the results to be below our expectations as we believe that 1Q benefited from a seasonal impact for its travel segment. We expect the quarters ahead would show weaker results due to expectations of muted adex in Malaysia on a lack of major catalysts in 2HCY19, as well as weaker economic conditions impacting its overseas publishing and printing markets. As such, we lower our FY20F–FY22F earnings forecasts by 6–10%.
• 1QFY20 core profit fell 11% YoY in tandem with a 13% decline in revenue mainly due to weaker performance seen for both its publishing and printing segments in all regions as well as its travel segment. This was despite lower taxation seen for the quarter.
• During 1QFY20, both the MYR and CAD weakened against the USD, resulting in negative currency impacts of RM6.7mil and RM0.5mil on group turnover and PBT respectively.
• YoY segmental review:

o Publishing and printing segment:

• Malaysia & SEA: Revenue and PBT fell by 22% and 52% respectively due to Malaysia’s weak adex market which saw total adex declining by 15.9% in 1QFY20.

• Hong Kong, Taiwan & China: Revenue and PBT dropped by 7% and 17% respectively mainly due to Hong Kong’s weak economy amid the ongoing USChina trade war, recent wave of protests, and declining retail sales. This was despite increased operational efficiencies and cost reduction efforts.

• North America: Revenue slid by 19% as ad-spend was impacted by weak economic conditions, especially that of its property sector. This was despite seeing growth in its digital business. However, a narrower LBT was recorded amid better cost control measures. MCIL is enhancing its digital capabilities and expanding digital service offerings for this market, alongside continuing its cost control measures.

o Travel and travel-related services: Revenue and PBT slipped by 4% and 14% respectively due to intense competition seen in the travel industry. The group is focusing on providing niche products and services such as customized luxury tours as well as incentives for group of all sizes to maintain its competitiveness.

• On a QoQ basis, 1QFY20 recorded a core profit vs. RM2mil core loss in 4QFY19 mainly due to a 32% increase in revenue as MCIL’s travel segment revenue more than tripled (up by +242% QoQ). This was because 1QFY20 coincided with the spring season, which is generally a popular time for travel, while 4QFY19 is generally a slow season for the travel industry, thus also having a low-base effect. On the other hand, its publishing and printing segment revenue declined by 8% but recorded a PBT of RM6mil vs. loss of RM71mil in 4QFY19. The previous quarter was impacted by one-off losses mainly from provisions for impairment of goodwill and PPE amounting RM76mil, excluding which would have seen a loss of RM3mil in 4QFY19.

• Outlook for the remaining quarters of FY20 is expected to be challenging and uncertain, particularly that of its publishing and print segment due to risks of the US-China trade war and political unrest in Hong Kong further impacting sentiments in its Hong Kong, Taiwan & China market, as well as the expected softening of the economy in SEA and Canada affecting its Malaysia & SEA and North American markets.

• We believe MCIL’s outlook will continue to remain dim amid: (i) declining newspaper circulation due to a structural shift towards digital content; (ii) subdued adex outlook against the backdrop of weaker consumer sentiment, and (iii) the growth of its digital revenue remains insufficient to offset the decline in traditional print media. However, we believe that MCIL’s negative prospects have been fairly priced in.

Source: AmInvest Research - 29 Aug 2019