Period  2Q15/1H15

Actual vs. Expectations Media Chinese Int’l (MEDIAC)’s 1H15 net profit of USD18.3m (or RM60.1m) came in below expectations, accounted for 45.5% of our, and 41.4% of the street’s, FY15 full-year estimates.

 The key negative variance on our end was mainly due to the higher-than-expected distribution costs.

Dividends  Declared a 1.439 sen (or US 0.43 cents) dividend with the ex-date set on 15 December. On a full year basis, we expect the group to declare a 3.7 sen DPS, translating into a decent dividend yield of 4.4% or a payout ratio of 50.0%.

Key Results Highlights YoY, 1H15 revenue dipped by 5.8% to RM778m, no thanks to the lower revenue contribution from the publishing and printing segment (-8.9% to RM433.7m). PBT, meanwhile, slid by 26% as a result of lower revenue and higher administrative expenses.

 QoQ, 2Q15 turnover grew 5.4% to RM399m as a result of higher revenue from the tour segments as the summer holiday is a traditional peak season for the tourism industry. PBT, meanwhile, climbed by 10.4% mainly due to stringent cost control efforts.

 The strengthening of RM against USD has led the group to record a favourable currency impact in 2Q15 of c.USD0.46 and USD0.2m on its turnover and PBT, respectively.

 MEDIAC’s Malaysia publishing and printing segment revenue dipped by 5.1% YoY to RM215m in 2Q15 due mainly to: (i) weak adex sentiment as a result of slower retail spending, and (ii) the spill-over effect of the MH17 incident, which caused advertiser’ to hold back/cancel ad spending.

 In its HK and Mainland China segment, meanwhile, revenue improved by 6.3% YoY to RM58m, thanks to a pick-up in the Hong Kong property market. The group’s North America division turnover, however, declined by 5.7% YoY (to RM19.2m) due largely to negative currency impact from the weakening Canadian dollar.

Outlook  MEDIAC expects its business environment to remain challenging in the remaining quarters due to the economic uncertainties and lower consumer confidence. Although the weakening in newsprint prices is expected to cushion its earnings, its advertising revenue remains cloudy as a result of cautious spending by both consumers and businesses.

Change to Forecasts

 Lowered both FY15/FY16 NPs by 3.1%/3.0% after raising the distribution costs assumption.

Rating Maintained UNDERPERFORM

Valuation  Lowered our MEDIAC’s TP to RM0.79 (from RM0.81 previously) based on targeted FY15 PER of 10.5x, representing a 5-year average PER.

Risks  Lower-than-expected adex growth

Source: Kenanga