- We maintain our BUY recommendation on Media Chinese International (MCIL) with a lower fair value of RM1.20/share (vs. RM1.28/share previously), as we roll forward our DCF valuation.

- MCIL reported 2QFY14 net profit of RM39.3mil (-9% QoQ, - 6% YoY), bringing total 1HFY14 earnings to RM82.8mil (-10% YoY). This was short of our expectation, making up only 45% of our earlier estimate. We have subsequently trimmed our FY14F-FY16F earnings by 9%.

- MCIL declared a dividend of 2.42 sen/share.

- Earnings continued to be weighed down by high finance cost (RM14.3mil vs. RM0.3mil in the same period last year), due to the loan that was undertaken to partly finance the special dividend last year.

- MCIL’s printing and publishing operations in Malaysia saw a segmental PBT growth of 9.5%, despite flat revenue in the first 6 months, thanks to reduction in overheads that led to improvement in margins.

- Its travel division also charted a strong performance with revenue growing by 23% and PBT increasing by 2.5x, due to strong demand for its long-haul tour packages - especially the European tours.

- However, printing operations in Hong Kong and China continued to be affected by tightened government policies on the local property markets, as well as Mainland China’s slowing economic growth that resulted in a decline in advertising spending from the property sector and luxury brands.

- Similarly, its North America print operations also faced a drop in adex caused by weak consumer sentiment and declining property market. Combined, the overseas print operations saw a decline of 10% in revenue.

- That said, although MCIL will continue to operate in a tough environment in the near term, we think it will see better 2HFY14F results due to seasonality effects in the final quarter of CY14.

- Going forward, we remain optimistic on MCIL for its dominant position within the resilient Chinese adex segment that has seen a consistent growth.

- At the current level, MCIL trades at a FY15F PE of 10x, at its 5-year mean level. Its current dividend yield of 6%-7% would also provide strong support to its share price, sustained by its strong cash-generating capabilities.

Source: AmeSecurities