Investment Highlights

• Media Chinese International Ltd (MCIL) issued a profit warning for 1HFY21F, expecting to record a loss of US$4.7mil to US$5.2mil (approx. RM20mil to RM22mil, assuming an average USD/MYR rate of RM4.26), attributable to the impact of Covid-19 on its travel business due to lockdowns and travel restrictions globally and a decline in ad spend in its key markets.

• Recall that for 1QFY21, the group had recorded a core loss of RM23mil after excluding a RM1mil exceptional loss from the amortization of intangible assets. We think that 2QFY21 might record a core profit of RM1mil to RM3mil, based on the announcement.

• Dismal adex market during MCO: According to Nielsen Ad Intel, during the movement control order (MCO) from 18 March to 3 May 2020, the whole adex market (excluding digital revenues) had been badly hit, falling across the board for all categories, particularly in March and April 2020 with traditional adex categories such as newspapers, TV, and radio leading the declines. Cinemas recorded zero ad spend for three months from April to June 2020 due to closures although recovery has been seen since July 2020 following their reopening albeit with decreased audience capacity due to social distancing and on top of a lack of new movie releases.

• …but steadily recovering: Since May 2020, industry adex has been recovering steadily on a monthly basis (Exhibit 1) following the easing of MCO restrictions leading to the reopening of various business sectors as well as an uptick in ads related to Ramadan and Raya festivities. 3QCY20 adex rebounded by 47% QoQ (Exhibit 2).

• We project a narrower loss of RM33mil in FY21F as the recovery trajectory thus far has been better than our expectations. However, we also take into account the possibility that the conditional MCO (CMCO) in all states except Kelantan, Pahang and Perlis from 9 Nov to 6 Dec 2020 could impact MCIL’s print & publishing earnings on muted consumer sentiments. We also assume narrowing losses in FY22F– FY23F accounting for anticipated recovery of its travel segment following the World Health Organization’s expectations that no mass vaccinations will be held till mid-2021.

• Maintain HOLD on MCIL with a lower fair value (FV) of RM0.16/share, pegged to a PB of 0.4x and lower net asset per share of 39 sen from the group’s latest 1QFY21 balance sheet (previous FV: RM0.18/share and net asset per share of 42 sen). Although the group faces a challenging operating environment which mires its outlook for both its publishing & printing and travel segments, its losses might be partially offset by benefits from its cost optimization initiatives

Source: AmInvest Research - 9 Nov 2020