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 cut our FY21F–FY22F forecasts by 13% after readjusting our tax assumptions to normalize beyond FY20F.

• We met up with MCIL’s management recently and came away with the following key highlights:

• 1HFY20 above expectations due to lower tax: MCIL’s 1HFY20 net profit of RM23mil beat expectations due to lower-than-expected taxation incurred in 2QFY20 after its North American operations received a tax refund upon successful application of a tax incentive scheme amounting C$1mil (around RM3mil). We note that otherwise, 1HFY20 EBITDA was in line with expectations at 52% of our forecasts.

• To assume non-recurring tax incentive for years ahead: MCIL shared that a lower effective tax rate would be enjoyed in FY20F due to the tax incentive received, but the tax credit is an accumulated one-off amount. The group guided that the years ahead would see tax rates normalize. The group historically pays a blended tax rate above the 24% statutory rate (around 30–37% effective tax rate in 2015–2017) mainly due to higher tax rate incurred for its travel operations in North America, which is offset by lower taxes paid in Hong Kong, Taiwan & China, and 24% tax rate paid in Malaysia.

• Consolidation of Nanyang Siang Pau and Sin Chew printing operations: The group confirmed that printing operations for its Nanyang Siang Pau publications has already shifted and is consolidated with Sin Chew’s printing operations in Jalan Semangat, Petaling Jaya. According to EdgeProp.my, Nanyang’s office building site located in SS7, Petaling Jaya has been put up for rent at an asking monthly rental of RM2.50 psf. Based on the advertisement put up by KnightFrank, the site spans 5.86 acres in Sungai Way Free Trade Industrial Zone and comprises a 137K sq ft 4.5-storey office and a 100K sq ft 2.5-storey warehouse. Meanwhile, Nanyang plans to relocate the remaining non-print operations in future. The group also shared that it does not have enough capacity in its Sin Chew plant to also consolidate China Press printing on-site.

Source: AmInvest Research - 9 Dec 2019