Media Chinese Int’l (MEDIAC)’s 9M17 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 trimmed our FY17E/FY18E core PATAMI by 17%/10%. With no earnings catalyst ahead, we are keeping our UNDERPERFORM call on MEDIAC with lower TP of RM0.56 (vs. RM0.59 previously).

Below par. 9M17 core PATAMI of RM64.3m (-40% YoY) came in below expectations; accounting for 74%/68% of our/street’s full-year estimates. On our end, the key negative variances were mainly: (i) lower-than- expected top-line performance, particularly the print and travel segments, and (ii) higher-than-expected OPEX. Note that the group’s 9M normally made up c.81%-89% of the full-year PATAMI, based on the past three years. As expected, no dividend was declared during the quarter as the group normally rewards shareholders during the 2Q and 4Q of each financial year. Having said that, we understand that management has an intention to distribute a minimum 50% of its PATAMI as dividend or to provide for a 6% dividend yield.

YoY, 9M17 revenue slipped 14% to RM1.01b, no thanks to the lower contribution from all segments. The group’s Publishing and Printing segment (-12% to RM813m) continued to be affected by the decline in advertising spending as a result of unfavorable business environment while its Tour division (-19% to RM265m) faced headwinds amid security concerns as well as competitive peer pressure. PBT dipped by 39% as a result of unfavorable exchange rate and lower margins. Stripping off the currency impact, 9M17 turnover would have weakened by 11.9% while its PBT would have narrowed 36.3%. QoQ, turnover softened by 16% due to weaker tour segment contribution followed a traditional strong traveling period in 2Q. PBT, meanwhile, declined by 12% in tandem with the weaker revenue.

Malaysian publishing and printing segment’s revenue dipped by 12% YoY to RM565m in 9M17 with PBT slipping by 23.5% to RM222m. The group’s operations in Malaysia have been affected by the decelerating economy and weak consumer sentiment, which continued to impact the advertising market negatively.

Outlook remains challenging in view of the country’s subdued consumer spending, shrinking advertising revenue as well as 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 as well as cut-throat competition. 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 17.2%/9.6% after imputing: (i) lower Print and Tour segment turnover contribution, (ii) higher distribution and administrative costs to reflect the latest run-rate. Correspondingly, we have lowered our MEDIAC target price to RM0.56 (vs. RM0.59 previously), based on targeted FY18 PER of 11.4x, representing an unchanged -1.0x SD below its 5-year mean.

Source: Kenanga Research - 28 Feb 2017