- We maintain our HOLD rating on Media Chinese International (MCIL) with a lower fair value of RM0.75/share (vs. RM0.88/share previously), based on a higher discount of 15% to our DCF value.

- We have trimmed FY16F and FY17F earnings by 7-8%, as we expect consumer sentiment to remain muted going forward.

- MCIL posted a third quarter net profit of RM37mil, bringing 9MFY15 earnings to RM101mil. This accounts for 82% of our full-year estimate, but was within consensus estimates at 78%. We leave our FY15 earnings unchanged for now, as the group may experience a challenging quarter leading up to the GST implementation in April.

- The group’s 3QFY15 net profit increased by 6% despite a 14% decline in revenue due to higher profit margin from its publishing and printing segments, coupled with cost savings from all operations.

- However, on a YoY comparison, its 9MFY15 net profit fell by 26%. This was mainly due to the weaker performance from the Malaysian operations, where PBT declined by 27% YoY. Its operating environment remained difficult amid weak consumer sentiment, made worse by the flood disaster in December 2014.

- The ongoing concerns from the government’s subsidy rationalisation programme, as well as the airline disasters in the previous quarters had also lowered advertisers’ appetite which saw many advertising events and promotions held back or cancelled throughout the year.

- Elsewhere, its operations in the other regions also posted lower PBT for 9MFY15. The operations in Hong Kong and China were hurt by lower advertisements due to weak retail sales in the luxury and branded segments, while its North America operations were impacted by the weakening Canadian currency.

- Overall, we expect earnings to remain muted, led by persistent weakness in consumer sentiment due to uncertainties amid the rising costs of living 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 an FY16F PE of 9x, compared with Star Publications’ and Media Prima’s 12x.

Source: AmeSecurities