- We downgrade Media Chinese International (MCIL) to a HOLD with a lower fair value of RM1.00/share (vs. RM1.13/share previously), based on our DCF valuation.

- MCIL reported 4QFY14 earnings of RM29mil (-34% QoQ, -36% YoY), bringing full year earnings to RM158mil (-15% YoY). This is below expectations, accounting for 94% of our estimates, and 96% of consensus’. We have trimmed our FY15-16F estimates by 9%-10%.

- MCIL declared a second interim dividend of 2.191 sen/share, which brings total DPS to 4.61 sen/share. This translates into a payout ratio of 50%. This is also below our expectations, as we have previously assumed a payout of 60%, which is line with previous payouts in recent years.

- 4QFY14 saw earnings weakness across all its segments due to adverse operating environment in their respective markets.

- Turnover from the Malaysian operations declined by 11% YoY in the fourth quarter, on the back of weaker advertising revenue. This was caused by weak consumer spending due to ongoing concern from the government’s subsidies, as well as the MH370 incident. We understand that the lower revenue is also due to a higher base in FY13 due to political advertisements leading up to the general election. Overall, full-year earnings for the segment declined by 5% YoY.

- Meanwhile, the group’s operations in Hong Kong and Mainland China also seemed to have slowed down in 4Q after charting decent results in the previous quarter due to intensified market competition and slowing economy. YTD earnings of the segment declined by 33% YOY, partly due to a gain on disposal of a subsidiary in the previous year for USD1.2mil.

- The North America operations managed to record a profit of USD992k for FY14, against losses in the previous year due to its cost optimisation efforts. Elsewhere, despite incurring bigger losses of USD540k in 4QFY14, its travel business saw a 230% increase in earnings to USD4.2mil for the year due to strong demand for its long-haul packages.

- All in all, MCIL expects the outlook for its major business segments to remain muted in the near term. Its core business, i.e. print operations, will likely continue to experience weakness due to advertisers’ cautiousness. MCIL also anticipates intense competition for the travel segment in higher margin sections.

Source: AmeSecurities