MCIL’s 1HFY17 core net profit of RM44m (-38% yoy) was largely within our expectation but below consensus. We are still cautious on MCIL primarily due to the continual weakness in its main print division with potentially more cautious ad spending in Malaysia and HK/China due to the uncertainties in the market. Poor consumer sentiment as well as the fierce competition from other tour operators in its travel division also weighs. Maintain our SELL rating on MCIL with target price unchanged at RM0.50.

Lower contribution from both print and travel segments

Media Chinese International Limited (MCIL) reported a 38.2% yoy decline in 1HFY17 net profit to RM42.1m on the back of lower revenue by 14.7% yoy to RM695.8m. Revenue was weaker as a result of continued weakness across all business segments. Print division’s 1HFY17 revenue declined by 12.1% yoy to RM504.6m due to weak consumer sentiments and soft advertising spending while travel division’s revenue declined by 20.9% yoy to RM191.2m due to drop in tourists going to Europe, which is one of the major tour destinations for the group. EBITDA margin was also weaker at 10.8% as compared to 14% in 1HFY16.

1HFY17 core net profit down 38% to RM44m, within expectations

After excluding one-off items, MCIL’s 1HFY17 core net profit dropped 37.5% yoy to RM43.6m. This came in largely within our expectations but below consensus, accounting for 42% and 38% of FY17 forecasts, respectively. Notably, MCIL announced an interim DPS of 1.45 sen (1HFY16: 1.93 sen).

Maintain SELL and target price RM0.50

We leave our FY17-19 core EPS forecasts unchanged. We maintain our cautious stance on MCIL largely due to: 1) weakness in its core print division; 2) potentially cautious ad spending in the Malaysia segment given the poor consumer sentiment and the uncertainties in the market; 3) potential ad spending slowdown in the HK/China market as advertisers cut their ad budgets in view of the slow property market as well as the slumping luxury retail sales; 4) negative effects on hard copy circulation due to the continual shift in reader preferences to reading on mobile devices or over the Internet; and 5) fierce competition from other travel operators. We maintain our SELL call on the stock with an unchanged 12- month target price of RM0.50, based on 8x 2017E EPS.

Source: Affin Hwang Research - 1 Dec 2016