Investment Highlights

• We maintain our HOLD recommendation on Media Chinese International Ltd (MCIL) with unchanged fair value of RM0.18/share, pegged to a PB of 0.4x despite lowering our forecasts after it issued a profit warning for 1QFY20, as we believe that its negative outlook has been fairly priced in.

• In its profit warning, the group expects to register a loss of US$5.6mil to US$6.2mil (approx. RM23.8mil to RM26.4mil) in 1QFY20 as its performance will be affected by its severely impacted travel business amid global lockdowns and strict travel restrictions, and expectations of weaker advertising revenues for the group across its markets i.e. Malaysia & Southeast Asia; Hong Kong & Taiwan; and North America.

• As such, we now project FY21F–FY23F to register losses of RM32mil–RM40mil after adjusting our revenue and margin assumptions for both MCIL’s print & publishing and travel segments.

• Print & publishing earnings will overall be impacted by weaker advertising revenues as advertisers turn cautious amid weakened economic conditions globally, while the travel segment will continue to be weighed down by travel restrictions with risks of a second wave of Covid-19 cases holding back travel plans.

• We believe that the pandemic has hastened the structural change towards digital offerings which still see difficult monetization due to competition, while the travel segment will continue to also see margin erosion from competitive airfares and customers opting to selfplan their holidays instead of choosing tour packages.

• However, the earnings decline might be mitigated by cost savings, higher digital contributions, and more domestic travel packages introduced in place of international options. Furthermore, the reopening of economies and easing of lockdowns would see a gradual recovery in earnings.

• We reiterate our HOLD call on MCIL as we believe the challenging operating environment faced by its key segments which have been worsened by Covid-19 impact have been roughly priced in.

Source: AmInvest Research - 23 Jul 2020