Results

1HFY14 PATAMI fell by 10% to RM82.8m (4.9 sen/share), making up 44.8% and 48.3% of ours and consensus estimates respectively.

Deviations

Slightly below due to weak Adex climate.

Dividends

Net dividend of 2.42 sen/share declared, higher than previous corresponding quarter payout of 2.05 sen/share, making up 46% of our 5.3 sen/share dividend forecast for FY14. Ex-date on 13 Dec-13, payment on 15 Jan-14.

Highlights

1HFY14 Review… 1H revenue inched up by 3% to RM820.7m, mainly driven by the travel division whereby it was bolstered by strong demand for high-quality tour packages to Europe. Malaysia’s print revenue was flat while print revenue in Greater China and North America divisions suffered contraction. Although operating profit managed to grow by 8% to RM131.2m, higher financing charges and effective tax rate resulted in earnings falling by 10% to RM82.8m.

2Q Review… Revenue grew by 3%/2% YoY/QoQ to RM409.0m, again lifted by the Travel division whereby 2Q is usually the strongest quarter. Print division suffered decline in revenue as the cautious sentiment remained. Tight control on overall expenses remained, resulting in PBT growth of 3% YoY to RM54.7m despite higher financing charges. However, 2Q PATAMI declined by 6% YoY to RM39.3m due to higher effective tax rate.

Risks

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

Forecasts

FY14-16 earnings reduced by between 3.3%-3.4% respectively as we factor in higher financing costs and lower interest income.

Rating

BUY

Despite higher financing charges impacting its earnings in the immediate term and weak Adex climate, we believe that MCIL’s cash generative business model will mitigate the financing charge impact going forward. The management has been prudent in containing overall costs to mitigate the slowdown in revenue. We continue to favour vernacular papers for its stickiness with the community. In view of more than 10% upside from the current share price, we are maintaining our BUY call on MCIL.

Valuation

As a result of lower forecasted earnings, our Target Price is trimmed by 3.3% to RM1.16 from RM1.20 based on unchanged P/E multiple of 11x FY14 earnings.

Source: Hong Leong Investment Bank Research- 28 Nov 2013