Results

• Below expectations – Media Chinese’s 1HFY17 revenue of RM695.8m was translated into earnings of RM42.1m, accounting for 39% and 37% of HLIB and streets’ full year estimation, respectively.

Deviation

• Weak consumer sentiment and decline in tourists visiting Europe.

Dividend

• Declared first interim dividend of 1.49 sen.

Highlights

• QoQ: Revenue picked up 6% mainly attributed to its travel services segment which grew 27%. However, PBT dropped as contribution from its publishing and printing segment declined. This was slightly offset by its Greater China segment which turned profitable due to cost saving measures after 2 consecutive loss-making quarters.
• YoY: 2QFY17 turnover fell 17% as the group was hit by the effects of poor consumer sentiment and decline in tourists visiting Europe resulting in a drop of 39% in PBT.
• YTD: 1HFY17 turnover dropped 20% as revenue from all segments declined mainly due to weak consumer sentiment. (Malaysia -18%, Greater China -17%, North America -15% and Travel -26%). PBT fell 42% as its Greater China operation remained in the red and its travel segment took a hit, falling 57% due to reduced tourist visits to Europe partly affected by the string of terrorist attacks that occurred.
• We expect the group to experience more challenges in FY17 due to soft adex expectations, slowdown in Greater China economy and continued decline in tourism industry in Europe.

Risks

• (1) Weak Adex growth; (2) High newsprint cost; (3) Threat of new players; (4) Shift to digital news; (5) Decline in tourism industry; (6) Depreciation of RM vs. US$; and (7) Regulatory risk.

Forecasts

• We cut our FY17-19 earnings forecast by 17%, 15% and 15%, respectively.

Rating

HOLD (↔)

• Although we favour MCIL for its prudent cost management and strong cash generative business, we believe that adex will remain soft and gloomy mainly caused by the macro headwinds and poor consumer sentiments.
• We opine that if its venture into digital media comes to fruition, it will be a positive rerating catalyst.

Valuation

• We maintain HOLD call with lower TP of RM0.61 (from RM0.71) based on unchanged P/E multiple of 9.5x (1SD below average mean).

Source: Hong Leong Investment Bank Research - 01 Dec 2016