Period

1Q16

Actual vs. Expectations

Media Chinese Int’l (MEDIAC)’s 1Q16 net profit of USD8.8m (or RM33.3m) came in within expectation; accounting for 26.4%/25.6% of our/the street’s full-year estimates.

Dividends

No dividend was declared during the quarter.

Key Results Highlights

YoY, 1Q16 revenue declined by 13% to RM377m due to lower contribution from the publishing and printing segment. PBT, however, improved marginally by 1% as a result of stringent cost control, which resulted in the margin improving 180bps to 12.6%. QoQ, turnover climbed by 15%, thanks to the improved performance of the tour segment. Its PBT, meanwhile, soared 103% to RM47.5m due to the absence of impairment for loss of good.

Both MYR and Canadian Dollar weakened against the USD YoY by 13.2% and 12.9%, respectively, resulting in negative currency impact on the group’s turnover and PBT by c.USD7.9m and USD1.6m.

MEDIAC’s Malaysia publishing and printing segment’s revenue dipped by 21.3% YoY to RM198m in 1Q16 mainly due to the market uncertainties over the impending implementation of GST. Nevertheless, by implementing more effective cost management strategies, the segment’s PBT merely dropped by 2.6% YoY to RM11.7m. Should we exclude the currency impact, the decrease in the Malaysia segment’s turnover would be only 11% YoY whereas the PBT would have increased by 10.1% YoY.

Outlook

Despite weakening newsprint prices which are expected to cushion its earnings, the group's, as well as the industry, advertising revenue remains challenging as a result of cautious spending by both consumers and businesses due to the implementation of GST coupled with the external economic headwinds.

Change to Forecasts

Raised FY16/17E NPs by 1.9%/1.5% after fine-tuning and lower administrative cost assumption to reflect the current run rate.

Rating

Maintained MARKET PERFORM despite our target price suggesting more than 10% upside from here. Our in-house economic team is in the midst of reviewing the MYR/USD assumption which could negatively affect our FY16/17E NPs by c.6.6% for every 10 sen MYR depreciation against the dollar. Note that our current MYR/USD assumption is at RM3.68 for FY16 and RM3.65 for FY17.

Valuation

Maintained our MEDIAC’s TP at RM0.58 based on a targeted FY16 PER of 7.6x (vs.7.7x previously), representing an unchanged -1.0x below its 5-year mean.

Risks to Our Call

Lower-than-expected adex growth

Source: Kenanga Research - 27 Aug 2015