- We maintain our HOLD rating on Media Chinese International (MCIL) with a lower fair value of RM0.88/share (from RM0.95/share previously), based on our DCF valuation.

- We have cut our FY15F-FY17F earnings by 10%-15%, as we reduce our EBITDA margin assumptions by 1ppt-2ppts. We have also tweaked our effective tax rate assumption upwards.

- MCIL reported 2QFY15 net profit of RM33mil (+21% QoQ, -17% YoY), bringing 1HFY15 earnings to RM60mil (-28% YoY). This is below expectations, accounting for only 41% of our previous FY15F earnings (consensus: 42%).

- The group declared an interim dividend of 1.4 sen/share (1HFY14: 2.4 sen/share). This accounted for only ~40% of MCIL’s 1HFY15 net profit. We maintain our payout ratio assumption of 50% for now.

- The weak performance for 2QFY15 mainly came on the back of weaker performance from the Malaysian operations, where PBT declined by 17% YoY. This was mainly due to the challenging business condition in Malaysia as consumer sentiment remained weak. The MH17 incident that took place during the quarter had led to many events and promotions being cancelled by advertisers. Furthermore, the National Day celebrations were also toned down by corporate and government agencies as a sign of respect.

- Pre-tax losses from the operations in North America widened by 13% YoY in 2QFY15 due to the negative currency impact from the weakening Canadian dollar. The tour segment was also adversely impacted, where intensified competition and price pressure in the local tourism market caused PBT for the segment to decline by 22% YoY to US$2.2mil.

- However, this was partially offset by stronger performance from its operations in Hong Kong and Mainland China, as 2Q PBT rose by 47% YoY.

- Overall, we expect earnings to remain muted going forward, led by persistent weakness in consumer sentiment due to uncertainties surrounding further subsidy cuts and the implementation of GST in Malaysia. Furthermore, Hong Kong advertising operations continue to be affected by the slowing down of the retail segment due to curbs on government spending in China.

- MCIL is now trading at FY15 PE of 12x, compared with Star’s 12x and Media Prima’s 13x.

Source: AmeSecurities