Results

1QFY14 PATAMI fell by 13% YoY to RM42.1m (2.5 sen/share), making up 22.8% and 23.4% of ours and consensus estimates respectively.

Deviations

We are expecting stronger earnings in the subsequent quarters; hence we consider earnings to be largely in line.

Dividends

None as opposed to 41 sen/share capital repayment in the previous corresponding period. Dividends are usually declared in the 2Q and 4Q.

Highlights

YoY… Revenue grew by 3% YoY to RM399m, lifted by stronger Malaysian operations and travel division. The former was due to greater Adex spending on election campaigns while the latter was due to increased popularity for Europe and other long-haul tour products. Both these divisions mitigated the revenue contraction in Greater China and North America divisions. Although operating profit managed to post 2% growth, due to higher financing charges and effective tax rate, earnings fell by 13% to RM42.1m.

QoQ… Revenue grew by 17%, mainly lifted by the travel division, which saw its revenue grow by 108% as 4Q is a seasonally weak quarter. Due to higher effective tax rate and MI charges, QoQ earnings dipped slightly by 1%.

Outlook… We believe print media will continue to face a challenging environment and increased competition for Ming Pao in Hong Kong. Although MCIL has 6-8 months newsprint inventory, the continued strengthening of US$ may hit MCIL’s earnings. However, we are confident that the management is able to overcome these obstacles.

Risks

Weak Adex growth; High newsprint cost; Threat of new players; Depreciation of RM vs. US$; and Regulatory risk.

Forecasts

Unchanged.

Rating

BUY

Despite the higher financing charges, MCIL has a cash generative business model. 1QFY14’s net debt level improved to RM139m from RM213m in 4QFY13 and is expected to improve further. Despite the weak Adex environment, we believe that it has already been reflected in its share price. Share price has retraced by ~21% from its peak of RM1.30. With values emerging and more than 10% upside from our revised lower Target Price, we upgrade MCIL to a BUY call.

Valuation

Target Price slashed by 8.4% to RM1.20 from RM1.31 based on lower P/E multiple of 11x FY14 earnings. A lower P/E multiple of 11x was ascribed due to adverse market sentiment.

Source:Hong Leong Investment Bank Research - 29 Aug 2013