Investment Highlights

• We maintain HOLD on Media Chinese International Ltd (MCIL) with an unchanged fair value of RM0.16/share, pegged to a PB of 0.4x. The group issued a profit warning for 9MFY21F, expecting to record a loss of US$3.4mil to US$3.7mil (approx. RM14.0mil to RM15.2mil losses, assuming an average USD/MYR rate of RM4.11 in 3QFY21), attributable to the impact of Covid-19 on its travel business and advertising revenues amid the global pandemic.

• Recall that for 1HFY21, the group had recorded a core loss of RM20mil. Based on the announcement, the group expects its 3QFY21F to record a core profit of RM4.9mil to RM6.2mil. On a QoQ basis, core profit would rise by 51–89% vs. 2QFY21’s core profit of RM3.3mil.

• Overall adex continued to recover in 3QFY21. According to Nielsen Ad Intel, the whole adex market (excluding digital revenues) continued to recover in October till November 2020, mainly driven by higher free-to-air (FTA) TV adex on a monthon-month basis which offset declines in other mediums. Meanwhile, newsprint and radio adex saw a declining trend from October to December 2020, as the recovery movement control order (RMCO) was replaced by the conditional MCO (CMCO) in 11 out of the 14 states excluding Kelantan, Pahang and Perlis from 9 November to 6 December 2020. Similarly, cinema adex revenue was impacted in November 2020 as cinemas nationwide suspended operations due to a resurgence of Covid-19 cases in the country.

• Due to the better-than-expected recovery in adex, we project narrower losses in FY21F–FY23F. However, we note that in January 2021, MCO restrictions were imposed in eight states and later extended to include all states except Sarawak – with the latest directive being that the MCO would end on 18 February 2021. As cases reached an all-time-high and continue to hover around 4–5K cases daily, we remain concerned of adex performance in 4QFY21 as Covid-19 restrictions might continue to dent consumer sentiments. According to a RAM Ratings survey in December 2020, business sentiment is expected to remain bleak in January to March 2021 as businesses are pressured by the reinstatement of movement restrictions as well as from the 3rd wave of Covid- 19 in Malaysia.

• We note that 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 - 8 Feb 2021