Results

• Above expectations – MCIL’s 9MFY16 revenue of RM1194.6m was translated into a core PATAMI of RM102.6m (increased 1% yoy), accounting for 93% and 82% of HLIB and consensus full year estimation, respectively.

Deviations

• Lower than expected expenses.

Dividends

• None. Usually declared in the 2nd and 4th quarter.

Highlights

• 9MFY16 review. All its operations recorded a drop in both revenue and PBT. Weak market condition, shift from traditional print medium to digital, and currency volatility attributed to the decline. With Media Chi nese’s cost management, expenses were much lower yoy by 17%.

• 3QFY16 review. The group registered a drop of 17% qoq and 6% yoy in revenue largely caused by lower contribution from the publishing and printing segment.

• Malaysia: Malaysian segment remained a drag for Media Chinese. Revenue and PBT fell 27% and 14% yoy, respectively, as adex spending was cautious due to higher cost of living and economic uncertainties.

• Greater China: Decline in sales was caused by weak retail conditions which affected adex spending. One Media Group was the culprit for lower revenue.

• North America: Sales declined 19% yoy. Its PBT on the other hand, continued slipping into the red, charting a loss of RM4.2m. The poor performance was due to depreciation of Canadian dollar vs USD and generally slower economy.

• Moving forward, we believe performance of travel services should slow down slightly, mainly on the back of series of terrorist attacks worldwide.

Risks

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

Forecasts

• As we tweak our model, earnings forecast are increased slightly by 2% to 6% for FY16 and FY17.

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 RM0.67 based on unchanged P/E multiple of 8x based on deviation stated above.

Source: Hong Leong Investment Bank Research - 29 Feb 2016