Results

• Below expectations ? Media Chinese?s 1QFY18 revenue of RM316.7m was translated into a core PATAMI of RM10.1m (-50% YoY), accounting for 10.2% and 11.1% of HLIB and streets? full year estimates, respectively.

Deviations

• Lower-than-expected revenue contributions from the printing and publishing segments.

Dividend

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

Highlights

• QoQ: 1QFY18 turnover rose by 15% but core earnings fell by 11%. The increase in revenue was mainly contributed from the travel segment. However, the publishing and printing segments continued to disappoint due to the structural shift to digital media.
• YoY: 1QFY18 revenue and core earnings declined by 5% and 50%, respectively. Total publishing and printing segment revenue fell by 13.3% YoY leading to shrinking economies of scale, translating to lower profit contribution.
• Outlook: Traditional media is currently facing the digital disruption. Moving forward, we expect the group to experience more challenges due to soft adex revenue and weak consumer sentiments.

Risks

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

Forecasts

• With the expectations of softer adex revenue and market outlook, we cut our FY18 and FY19 earnings forecasts by 44% and 46% to RM54.9m and 58.5m, respectively. We also introduce FY20 core PAT forecast at RM44.5m.

Rating

SELL (↓ )

• We see MCIL?s earnings to be affected by cautious adex growth caused by weak consumer sentiment and sluggish economy. In near term, we need to see more digital transformation initiatives from Media Chinese in order to save the sunset business.

Valuation

• We downgrade to SELL with a lower TP of RM0.33 from RM0.55 after earnings cut based on unchanged P/E multiple of 9.5x (1SD below mean) on FY19 EPS.

Source: Hong Leong Investment Bank Research - 30 Aug 2017