Media Chinese Int’l (MEDIAC)’s 1Q17 results were below expectations due to lower-than-expected turnover and higher OPEX. No dividend was announced during the quarter, as expected. Post-results review, we slash our FY17E/FY18E core PATAMI by 22%/14%, and downgraded the stock rating to UNDERPERFORM with lower TP of RM0.60 (from RM0.73, previously). Nevertheless, the group’s high dividend yield of 6.1% is expected to provide some cushion against volatility.

Below expectation. 1Q17 core PATAMI of RM20.3m (-43% YoY) came in below expectations; accounting for 17%/17.4% of our/street’s full-year estimates. Note that the group’s 1Q normally made up c.21%-32% of the fullyear PATAMI, based on the past five years. 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.

No dividend was announced during the quarter, as expected. For the full financial year, we expect the group to declare a total DPS of 4.5 sen (vs. 4.7 sen previously), translating into a dividend yield of 5.8% or a payout ratio of 83%. Note that, we understand that management is aiming to distribute a minimum 50% of its PATAMI as dividend or to provide for a 6% dividend yield. On the other hand, we also do not discount that the group may utilize some proceeds arising from the recent disposal of OMG (where MEDIAC is expected to generate a net gain of HKD363m) to reward shareholders. For illustrative purposes, should MEDIAC decide to distribute HKD112.5m (or half of its proceeds for general working capital and investment purposes) in form of a special dividend, this would imply c.3.5 sen/share.

YoY, 1Q17 revenue dipped by 17% to RM334m due to lower contribution from the publishing and printing (-15%, due to lower adex revenue amid poor consumer sentiment) and travel (-23% due to string of terrorist attacks in Europe, which was one of the main tour destinations of the group’s travel business) segments. PBT, meanwhile, also declined, by 41%, in tandem with the weaker revenue. Stripping off the currency impact, 1Q17 turnover would have weakened by 12.6% while its PBT would have narrowed 34.1%.

QoQ, turnover improved by 17% while PBT surged 125%, thanks to higher tour segment contribution coupled with lower base effect, where the group had recognized an impairment loss on goodwill of c.RM8m in 4Q16.

Malaysian publishing and printing segment’s revenue dipped by 15.9% YoY to RM178m in 1Q17 (amid the soft advertising market and weak consumer sentiment in all its publishing segments) with PBT slipping by 23.1% to RM36.3m. The decline in turnover and PBT would have been 7.9% and 15.7%, respectively, if currency impact was excluded.

Outlook remains challenging in view of the ongoing economic uncertainties and currency volatility. While newsprint prices are expected to remain firm, 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 amid growing safety and security concerns. Having said that, we understand that the group will continue to strengthen efforts to diversify its revenue stream (i.e. e-commerce) as well as focus on improving operational efficiencies.

Trimmed FY17E/FY18E PATAMI by 21.9%/14.1% after factoring: (ii) lower Print and Tour divisions’ turnover contribution, (ii) higher distribution and administrative costs to reflect the latest run-rate, and (iii) revised RM/USD currency estimation to RM4.08/RM4.10 from RM4.30 each previously. Correspondingly, we have cut our MEDIAC rating to UNDERPERFORM with lower target price of RM0.60 (from RM0.73, previously), based on a targeted FY17E PER of 10.9x (vs. 10.4x previously), representing an unchanged -0.5x SD below its mean.

Source: Kenanga Research - 24 Aug 2016