Period  2Q14/1H14

Actual vs. Expectations Media Chinese Int’l (MEDIAC)’s 1H14 net profit of USD25.4m (or RM82.8m) came in within expectations, accounting for 47.3% and 47.9% of our and the street’s FY14 full-year estimates, respectively.

Dividends  Declared a 2.42 sen (or US 0.75 cent) interim dividend with the ex-date set on 13 December.

Key Result Highlights YoY, MEDIAC’s 1H14 revenue improved by 3% to RM820.7m, thanks to the higher contribution from its tour segment (+23% YoY to RM194m) led by the higher long-haul tour demand. The group’s PBT, meanwhile, dropped 4% to RM116.2m due mainly to higher finance costs. The net profit was reduced by 10% to RM82.8m, no thanks to the higher losses at its associate level as well as a higher effective tax rate of 27.2% (vs. 22.4% a year ago).

 QoQ, the revenue was relatively flat inching down 1% to RM409m as a result of sluggish performance in the publishing and printing segment, although its tour division recorded a strong 30% jump in revenue.

 The group’s publishing and printing segment revenue declined by 9% QoQ to RM92m, which reflected the difficult trading environment in Malaysia, HK and Mainland China, where the latter two operations were adversely impacted by the property market cooling policies introduced by their government amid slower economic growth.

 The group’s PBT, meanwhile, slipped by 11% due to the lower gross profit as compared to the immediate preceding quarter.

 Both RM and Canadian dollar weakened against the USD during the quarter, resulting in negative currency impact of c. USD3.2m and USD0.6m on the group’s revenue and PBT, respectively. On the 1H14 basis, the negative currency impact was approximately USD2.2m and USD0.4m for revenue and PBT, respectively.

Outlook  MEDIAC expects its business environment to remain challenging in the coming quarters due to the ongoing subsidy rationalisation measures which could weigh on consumer sentiments and ultimately affect the advertising spending in Malaysia.

 Newsprint price is expected to remain stable. However, cost pressures arising from strengthening of USD against RM remains a concern.

Change to Forecasts Lowering FY14 NP by 1% to RM165m after fine-tuning but leave the FY15 forecast unchanged.

Rating Maintained MARKET PERFORM

Valuation  Lowered our MEDIAC’s TP to RM1.13 (from RM1.19 previously) after shifting our valuation base year to FY15 with an unchanged targeted PER of 12.0x (+0.5x SD).

Risks to Our Call Lower-than-expected adex growth

Source: Kenanga