Results

• Within expectations – Media Chinese’s 9MFY18 revenue of RM896.2m was translated into a core PATAMI of RM35.7m (-43.7% YoY), accounting for 73% and 72% of HLIB and streets’ full year estimates, respectively.

Deviations

• Broadly in line.

Dividend

• None.

Highlights

• QoQ: 3QFY18 turnover and core earnings declined by 18.7% and 25.9%, respectively. The decrease in revenue was mainly due to lower contribution from printing and publishing segments. On the other hand, revenue from the travel segment similarly declined by 49%, as the preceding quarter fell on summer (peak travelling season).
• YoY: 3QFY18 top line and core earnings declined by 13.8% and 53.6%, respectively as the group was impacted by lower sales as advertisers remained cautious with their spending. Such cautious sentiment had affected adex especially in the traditional media platform.
• YTD: 9MFY18 revenue and core earnings declined by 15.6% and 43.7%, respectively. Travel segment showed a 0.7% growth in revenue, it was however weighed down by the weaker publishing and printing segments. The publishing and printing segments continued to disappoint due to the structural shift to digital media while total publishing and printing segments revenue fell by 17.6% YoY.
• Outlook: Traditional media is currently facing the digital disruption and the travel business will be slow moving as fully independent travellers are on the rise. Moving forward, we expect the group to experience more challenges due to soft adex revenue and weak consumer sentiments.

Risks

• (1) Weak Adex growth; (2) High newsprint cost; (3) Threat of new players; (4) Depreciation of RM vs. US$; and (5) Regulatory risk.

Forecasts

• Unchanged.

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 businesses.

Valuation

• We maintain SELL with an unchanged TP of RM0.27 based on unchanged P/E multiple of 9.5x on FY19 EPS.

Source: Hong Leong Investment Bank Research - 27 Feb 2018