Results

Below expectations – MCIL’s 1QFY15 PATAMI fell by 37% YoY to RM26.6m (1.57 sen/share), making up 15% and 17% of ours and consensus estimates respectively.

Deviations

Due to lower contribution from publishing and printing segment from domestic, China and North America operations.

Dividends

None. Dividends are usually declared in the 2Q and 4Q.

Highlights

YoY… Revenue fell by 7% from RM399.2m to RM370.8m. It was largely due to lower contribution from the publishing and printing segment (dropped by 9.3% yoy). YoY overall PBT dropped by 32.8%.

The Malaysian operations slowed due to weak sentiment following the effect of Government subsidy rationalisation and aviation tragedies.

China division: While its property market has shown signs of improvement, the growth was offset by weak retail sales. Its tour operation experienced a decline in revenue caused by market competition, but was offset by North America’s better performance from tour operations. North America: Printing sales was affected by bad weather conditions and slow economy.

QoQ… Revenue grew by 14%, thanks to the travel division (Easter Holidays occurred in April), which saw its revenue grow by 115% as 4Q is a seasonally weak quarter. As a result of higher effective tax rate of 32%, QoQ PATAMI fell by 9%.

Outlook… We remain cautious on the overall adex outlook and expect it to be slightly muted. The weak consumer sentiment resulting from announcement of GST implementation and government subsidy rationalisation was compounded by the MH370 and MH17 incidents which resulted in advertisers cancelling or deferring their adex spending.

However, note that there is a high possibility for MCIL to be deemed SC Shariah compliant again in the next review.

Risks

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

Forecasts

To reflect the cautious adex growth, adverse impact of MH370 & MH17, as well as lower-than-expected sales from print and publishing segment, we slashed our FY15 and FY16 earnings by 19-20%.

Rating

HOLD

We favour MCIL for its prudent cost management and its decent yield of 5-6% at current share price given its strong cash generation business. However, with the weak consumer sentiment caused by government subsidy rationalisation, GST implementation and the twin aviation disasters coupled with our Neutral outlook on the sector, we downgrade MCIL to a HOLD.

Valuation

Target Price reduced by 18% to RM0.93 from RM1.13 previously based on unchanged P/E multiple of 11x CY15 earnings.

Source: Hong Leong Investment Bank Research- 29 Aug 2014