Media Chinese Int’l (MEDIAC)’s FY16 results were below expectations due to lower-than-expected turnover and higher OPEX. However, a surprise DPS of 2.4 sen was announced during the quarter. Post-results review, we have lowered our FY17E PATAMI by 13% to account for lower turnover growth and higher operating expenses. Downgraded to UNDERPERFORM with lowered TP of RM0.63 (from RM0.65, previously), based on a targeted FY17E PER of 9.0x (vs. 8.0x previously), representing an unchanged -1.0x SD below its mean.

Below expectation. FY16 core PATAMI of RM104m (-20.0% YoY) came in below expectations; accounting for 82.5%/83.5% of our/street’s full-year estimates. On our end, the key negative variances were mainly due to: (i) lower-than-expected top-line performance, particularly the print and travel segments, and (ii) higher-than-expected OPEX.

A surprise DPS of 2.4 sen (or US 0.6 cents) was announced with the exdate set on 23-June. On a full-year basis, it has declared a total DPS of 4.3 sen (or US 1.1 cents), translating into a dividend yield of 5.8% or a payout ratio of 69.6%, which is a pleasant surprise to us. Moving forward, we have raised our FY17E DPS to 4.7 sen (vs. 4.0 sen previously), translating into a dividend yield of 6.4% or a payout ratio of 67%. The group has a dividend policy to distribute at least 50% of its PATAMI as dividend as well as to achieve a targeted dividend yield of c.6%.

YoY, FY16 revenue dipped by 19% to RM1.36bm due to lower contribution from the publishing and printing (-22%, as a result of lower adex revenue amid poor consumer sentiment) and travel (-4%) segments. PBT, meanwhile, also declined, by 21%, in tandem with the weaker revenue. Stripping off the currency impact, FY16 turnover would have weakened by 8.6% while its PBT would have narrowed 3.2%.

QoQ, turnover slid by 12%, primarily due to the weaker print (-8%, on the back of lower adex revenue) and travel (-32%, as a result of global security fears due to increasing terrorist activities around the world) segments. PBT, however, plunged by 69% to RM12.9m, no thanks to the higher distribution and administrative expenses.

Malaysian publishing and printing segment’s revenue dipped by 21.6% YoY to RM170m in 4Q16 (amid the soft advertising market and weak consumer sentiment in all its publishing segments) with PBT slipping by 31.1% to RM29.8m. The decline in turnover and PBT would have been 9.1% and 19.1%, respectively, if currency impact was excluded.

Both RM and CAD weakened against the USD in 4Q16 and FY16, resulting in negative currency impact of the group’s turnover and PBT by c.USD7.5m and USD1.3m, for the current quarter and USD43.1m and USD8.6m respectively, for the full-year.

Outlook remains challenging in view of the ongoing economic uncertainties and currency volatility. While newsprint prices are expected to remain firm for FY17, it may have an adverse impact should MYR continue to depreciate against USD. The group’s travel business, meanwhile, is expected to continue facing difficult market conditions in the year ahead amid growing safety and security concerns. Having said that, we understand that the group will continue to strengthen efforts to diversify its revenue stream as well as focus on improving operational efficiencies.

Trimmed FY17E PATAMI by 13% after factoring a lower turnover growth with higher distribution and administrative costs to reflect the latest run-rate. Meanwhile, we also introduce our FY18 forecast, where we expect PATAMI to inch up by 2.4% YoY on the back of 0.5% YoY revenue growth.

Source: Kenanga Research - 31 May 2016