Results

• Within expectations – Media Chinese’s 1QFY16 revenue of RM377.2m was translated into a core PATAMI of RM33.4m (a 25% increase yoy), accounting for 27% and 26% of HLIB and consensus full year estimation, respectively.

Deviations

• None.

Dividends

• None. Dividends usually declared in 2Q and 4Q.

Highlights

• Yoy review. Turnover was also within our expectation. Malaysian segment declined 8% yoy due to weakening of consumer and business sentiments resulted from GST implementation, depreciation of RM vs. USD, and higher cost of living. Its tour segment registered a signi ficant improvement, +21% yoy attributed to new tour products offering. Mainland China segment continues to be affected by weak retail envi ronment which saw advertising and promotional being reduced.

• Qoq review. Revenue increased 17% qoq (coming from a lower base as 4th quarter is by tradition a weak quarter as adex are usually spent in Oct-Dec period. ). However, core PATAMI declined 10% qoq mainly caused by allowance for impairment loss of interest in associate.

• Outlook. We expect the group to experience more challenges in FY16 due to lingering effect of GST in Malaysia as well as slowdown in Greater China economy. China and Hong Kong business contributing 15%-16% to MCIL’s topline, whil e PBT is approximately 10%. The slowdown may hurt consumer and business sentiment, thus, generating lower adex revenue for the group. However, the group’s effecti ve cost management as well as low news print prices should be able to mitigate further earnings downside.

Risks

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

Forecasts

• Due to slower business and market outlook, we cut our FY16-FY17 earnings by 4%-9%.

Rating

• HOLD
• Although we favour MCIL for its prudent cost management and strong cash generative business, we believe that adex will be unexciting and gloomy mainly caused by the short term macro headwinds and poor consumer sentiments. Maintain HOLD.

Valuation

• TP lowered to RM0.43 based on lower P/E multiple of 6x CY16 earnings due to slower business and sector outlook.

Source: Hong Leong Investment Bank Research - 27 Aug 2015