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 0.44x which is in line with its 1-year historical PB.

• We cut FY20F–FY22F earnings by 15–17% as we anticipate the coronavirus disease 2019 (Covid-19) outbreak to impact its travel segment earnings. Recall that 55% of MCIL’s travel segment customers are from Hong Kong. Meanwhile, travel restrictions have been put in place globally to contain the spread of the virus.

• MCIL’s 3QFY20 recorded a core profit of RM14mil, bringing 9MFY20 core profit to RM36mil. The 9M results exceeded our and consensus’ full-year forecasts by 8% and 15% respectively but we consider results to beneath expectations as we anticipate a weaker 4QFY20.

• YoY: 9MFY20 core profit rose 14% due to: (i) lower interest expenses; and (ii) lower effective tax rate mainly due to the tax incentive received for its North American operations. This was despite PBT dropping 12% in tandem with a 13% decline in revenue for both its publishing & printing and travel segments.

• We note that 9MFY20 saw negative currency impacts as both the MYR and CAD weakened against the USD, impacting MCIL’s turnover by RM8.9mil and its PBT by RM0.6mil.

• Segmental analysis:

o Publishing & printing: PBT plunged 25% as revenue dropped 4% across all of the group’s market segments.

• Malaysia & SEA: PBT and revenue tumbled by 17% and 31% respectively amid sluggish domestic business conditions and weak adex sentiments.

• Hong Kong, Taiwan & China: Revenue fell 6% amid Hong Kong protests and the US-China trade war, but LBT narrowed due to better cost savings.

• North America: Revenue weakened 19% due to weaker economic conditions but LBT narrowed on higher newspaper cover prices, receipt of a grant from the local government as well as continued cost optimization efforts.

o Travel: PBT plunged 22% as revenue dropped 12% mainly due to the absence of FIFA World Cup related tours, intense competition, and weaker sales for its Hong Kong operation amid ongoing protests.

• QoQ: Revenue in 3QFY20 contracted by 23% mainly due to a 53% decline in travel segment revenue as the peak period for the travel business coincided with the previous quarter (high-base effect). However, PBT rose 7% due to improved performance for its publishing & printing segment, likely due to its cost control efforts.

• 4QFY20 outlook: MCIL expects the upcoming quarter to be negatively impacted by the Covid-19 outbreak which will dampen business sentiments and demand for travel, particularly in Hong Kong which has already been hit by protests since June 2019. Furthermore, 4Q is usually a seasonally weak quarter for both the advertising and travel business.

• Maintain HOLD on MCIL amid its lacklustre outlook due to: (i) declining newspaper circulation; (ii) subdued adex outlook in its market segments; and (iii) negative events impacting its travel business which will not be sufficient to offset the decline in traditional media earnings. This is despite the group’s cost-optimization initiatives which have led to savings.

Source: AmInvest Research - 28 Feb 2020