Results

• Below expectations – Medi a Chi nese’s 1QFY17 revenue of RM333.8m was translated into a core PATAMI of RM20.3m (-12% yoy), accounting for 17% of ours and streets’ full year estimation.

Deviations

• Lower than expected PBT margin from all of its segments.

Dividend

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

Highlights

• Yoy review. Turnover declined 12% yoy but was within our expectation, accounting for 24% of our full year estimates. Revenue from all segments was affected by weak consumer and business sentiment, weakening currency and structural shift to digital media from traditional platform.

• Malaysia: Revenue declined 10% yoy and PBT margin contracted 2ppts yoy causing PBT to fall 18% yoy.

• Greater China: Adex revenue was affected by the decline in the country’s property market acti vity as well as its declining retail envi ronment. Revenue declined 7% yoy recording a loss of RM5m. Greater China contributes circa 16% to the group’s topline.

• North America: Revenue declined 10% yoy attributed to slow economic growth and weakening Canadian Dollar, recording a loss of RM1.2m

• Travel services: Revenue took a hit (-17% yoy) due to a string of terrorist attacks occurring in Europe which was one the group’s main tour destinations. PBT Margin contracted 3ppts yoy.

• Qoq review. Revenue increased 21% qoq while core PATAMI increased 88% (coming from a lower base as 4Q is historically a weak quarter as adex are usually spent towards the end of the year).

• We expect the group to experience more challenges in FY17 due to soft adex expectations, slowdown in Greater China economy and continued terrorist threat globally.

Risks

• Weak Adex growth;

• High newsprint cost;

• Threat of new players;

• Depreciation of RM vs. US$; and

• Regulatory risk.

Forecasts

• Due to lower adex revenue expectations and market outlook, we cut our FY17-FY18 earnings forecasts by 8.5%- 5.4%. We also introduce FY19 forecast.

Rating

HOLD

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

• We will only turn positive on this stock if its venture into digital media comes to fruition.

Valuation

Post earnings adjustment and roll over to FY18-19, we maintain HOLD call with unchanged TP of RM0.71 based on the unchanged P/E multiple of 9.5x (1SD below average mean)

Source: Hong Leong Investment Bank Research - 24 Aug 2016