We attended Media Chinese’s analyst briefing and came away with a neutral view. The company incurred an impairment loss of RM80m and reported a rather disappointing FY18 core earnings of RM35m (-47% YoY). Earnings were dragged by weaker performance from all segments. Moving forward newsprint cost will be a major concern for the group as newsprint price has risen by about 35% YoY. However, the group has taken cost saving measures to downsize their newspaper. We lower our FY19 forecast by 14% to account for lower adex moving forward. We upgrade to HOLD with a lower TP of RM0.23.

We attended Media Chinese’s analyst briefing and came away with a neutral view. In adapting to industry challenges, the group is diverting into multiple advertising products instead of sticking to the traditional print.

FY18 results were dragged by impairment and provision. The company incurred an impairment loss of RM80m and reported a rather disappointing FY18 core earnings of RM35.1m (-47% YoY). Earnings were dragged by weaker performance in all segments.

Print adex continues to fall. The 20.7% YoY drop in Malaysia’s Mar-18 print adex was significant, leading MCIL’s Malaysia print revenue to drop by 25.3% YoY (before impairment losses). Besides that, the print adex in Hong Kong fell by 9.7% YoY in Mar18, specifically the magazine segment was hit the hardest.

Worries about pricier newsprint. Due to the recent shortages, newsprint price has risen by about 35% YoY. It is now hovering at around USD680-710/ m3 tonne from USD500-550/ m3 tonne. Newsprint accounts for about 20% of group’s total cost, hence if the price maintains or continues to surge, it will be a challenging year ahead.

Cost saving measures. In the briefing, management mentioned that, the group will be downsizing the size of their newspaper from 28inch to 27inch by August 18. With this, the group will be able to save 3.5% of newsprint usage. Management believe that there are more room to downsize the paper to a more portable size.

Improvement in digital adex. MCIL believes in having multiple advertising platforms to serve different targeted audiences. It is best to provide a combination of everything, which includes print, event, and digital. The group mentioned that it would continue to explore into the digital market.

Forecast. We lower our FY19 forecast by 14% to account for lower adex.

As the share price has converged close to our previous TP we upgrade to HOLD from Sell. Post earnings adjustment, we lower our TP: RM0.23 (previously:RM0.27) based on unchanged P/E multiple of 9.5x on FY19 EPS.

Source: Hong Leong Investment Bank Research - 1 Jun 2018