Investment Highlights

• We maintain our HOLD recommendation on Media Chinese International (MCIL) with an unchanged fair value of RM0.18/share, pegged to a PB of 0.45x.

• We have raised our FY20F–FY22F earnings by 19–27% after adjusting our effective tax rate and net interest assumptions. Effective tax for FY20F has been lowered to reflect that the group will benefit from a tax incentive scheme.

• MCIL’s 2QFY20 net profit came in above our expectations at RM13mil, bringing 1HFY20 net profit to RM23mil. This accounts for 86% of our full-year forecasts and consensus' estimates. The variation was mainly due to lower-than-expected taxation incurred for 1HFY20 as 1HFY20 EBITDA accounted for 52% of our and 56% of consensus’ full-year estimates.

• 1HFY20 net profit declined 10% YoY in tandem with a 14% YoY fall in revenue as weaker performance of the overall publishing and printing segment as well as the travel segment had impacted earnings. 1HFY20 saw a lower effective tax rate of 14% (vs. 40% in 1HFY19) due to receipt of a tax refund by an overseas subsidiary from an overseas tax authority upon the successful application for a tax incentive scheme.

• We note that the weakening MYR and CAD against the USD of 3% and 2% respectively resulted in negative currency translation impacts of ~RM9.3mil on MCIL’s revenue and ~RM0.7mil on group PBT respectively.

• YoY segmental review:

o Publishing and printing segment: Segment PBT and revenue shrank by 64% and 16% respectively as revenues fell across all sub-segments due to reduced market adspend.

• Malaysia & SEA: PBT and revenue declined by 53% and 20% respectively due to the absence of significant adex-boosting events such as the FIFA World Cup and GE14 in 2018 and amid weak consumer sentiment.

• Hong Kong, Taiwan & China: Revenue dropped 2% amid the US-China trade war and continuing protests, but LBT narrowed due to continued cost control efforts.

• North America: Revenue fell 19% amid a lacklustre business environment and softening property market. However, LBT narrowed due to cost savings and with the help of a grant from the local government.

Source: AmInvest Research - 26 Nov 2019