Results

• Above expectations – MCIL’s 1HFY16 revenue of RM867.1m was translated into a core PATAMI of RM72.3m (decreasing 10% yoy), accounting for 65% and 58% of HLIB and consensus full year estimation, respectively.

Deviations

• Due to higher than expected revenue from Greater China and Tour segment.

Dividends

• Interim dividend of 1.93 sen/share was declared. Ex-date on 08-Dec-2015, pay-date on 23-Dec-2015.

Highlights

• 1HFY16 review. Due to weak market conditions in all its division, 1HFY16 total sales declined 17% yoy. Expenses were much lower, dropping 16% yoy. Despite the group cost saving efforts, PBT experienced double digit drop of 10% yoy.

• 2QFY16 review. The group registered a decline of 3% qoq and 20% yoy in revenue largely attributed to lower contribution from the publishing and printing segment.

• Malaysia: The lacklustre performance for Malaysian segment was caused by lingering effects of GST, higher costs of living, potential subsidies removal and depreciation of RM. This has caused advertisers to cut back on their Adex spending. Its PBT fell 20% qoq and 26% yoy.

• Greater China: Revenue and PBT declined mainly on the back of weak property market and slower luxury retail sales. We believe outlook for Greater China will still remain slow in quarters to come.

• North America: PBT suffered a loss of RM2.8m attributed by weakening Canadian dollar against USD and a generally slower economy.

• For the group’s tour segment, revenue dropped marginally ( - 2.5% yoy). Thanks to cost cutting measures, PBT climbed 51% qoq and 65% yoy to RM15.9m.

• We opine that Adex would remain flat in 2015. Its cost cutting initiatives would be able to mitigate its lower revenue moving forward.

Risks

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

Forecasts

• Increase earnings by 6% - 8% for FY16 and FY17 based on deviations stated above. Introduced our FY18 forecast.

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

• Increased TP to RM0.50 as we roll forward our valuation from CY16 to CY17 based on unchanged P/E multiple of 6x.

Source: Hong Leong Investment Bank Research - 26 Nov 2015