• We maintain our HOLD call on Media Chinese International (MCIL) with an unchanged fair value of RM0.55/share.

• MCIL declared a higher first interim dividend of 2.2sen (vs 1HFY15: 1.4sen).

• MCIL posted a 2QFY16 net profit of RM33.5mil (-13.9% QoQ, - 24.1% YoY), bringing 1HFY16 to RM72.3mil, coming within our and consensus estimates, at 58% of our full-year estimate.

• 1HFY16 revenue came in at RM867.1mil (-17% YoY), which was within 59% of our estimate. Apart from Travel, revenue dropped in all other segments due to the more difficult economic conditions globally.

• 1HFY16 earnings declined at a slower pace of 10% YoY due to MCIL’s overall cost saving measures. Commendably, MCIL was able to improve its overall margins in 1H by 1ppt to 13.5%.

• Malaysia, which contributes 80% of MCIL’s earnings, saw its 1HFY16 revenue decline by 26% YoY. This was due to the poor consumer sentiment and slower adex conditions as a result of the higher cost of living and depreciation of the ringgit. However, due to its cost efficiency measures taken, its PBT declined only by 14.5% YoY, while margins widened to 21.5% (+3ppt YoY).

• Meanwhile in the USA, the Travel segment continues to flourish, seeing its earnings swell to RM26.5mil (+73.8% YoY). We believe this was due to the better product mix of highermargin US tours and also the cost management measures taken during the quarter.

• HK and China operations continue to be subdued, making only marginal profits due to the ongoing slowdown in luxury retail sales and stagnant property market in the region.

• Looking forward, we foresee another challenging half-year ahead due to the economic uncertainty globally. Additionally, MCIL’s key publishing segment will continue to be pressured by a flattish adex outlook and increasing competition from other media sources such as Pay TV.

• MCIL still continues to push forward its media digitisation strategies to address changing media trends. In a positive development, MCIL’s new video news snippets mobile application, Pocketimes, was reported to receive >3.4mil page views per month in less than a year of its launch.

• MCIL’s yield stands at an attractive 7%, with a strong cash pile of RM551mil. MCIL is currently trading at FY16F PE of 8x. Media Prima and Star Media Group are currently trading at 10x and 13x respectively.

Source: AmeSecurities Research - 26 Nov 2015