MEDIAC?s FY17 core PATAMI came in within our expectation but below street?s full-year estimate. A 1.6 sen DPS was announced, as expected. We do not discount potential goodies could be on the cards post the completion of OMG disposal in 2HCY17. Post- results review, we reduced our FY18E core PATAMI by 4% with lower TP of RM0.65 (vs. RM0.67 previously), based on targeted FY18 PER of 13.7x (5-year mean). With potential total capital upside of c.18%, we have raised our stock rating to OUTPERFORM (from MARKET PERFORM previously).

In-line. FY17 core PATAMI of RM77m (-35% YoY) came in within our expectation (at 105%) but below the street?s (at 91%) full-year estimates, due mainly to the lower-than-expected top-line performance. Note that, our core PATAMI was derived after adding the RM15.9m provision for impairment of goodwill, which we suspect could be due to its Nanyang?s operation. A 1.6 sen dividend was announced (with ex-date set on 16- June), bringing the full-year DPS to 3.18 sen, in-line with our expectation.

YoY, FY17 revenue slipped 13% to RM1.34b, no thanks to the lower contribution from all segments. The group?s Publishing and Printing segment (-12% to RM1.03b) continued to be affected by a decline in advertising spending as a result of unfavorable business environment while its Tour division (-16% to RM307m) faced headwinds amid security concerns as well as competitive peer pressure. PBT dipped 44% as a result of unfavorable exchange rate; lower margins; and RM15.9m provision for impairment of goodwill. Stripping off the currency impact, FY17 turnover would have weakened by 11.4% while its PBT would have narrowed 34.7% should the provisions for impairment of goodwill was excluded. QoQ, turnover softened by 13% as the higher travel segment contribution (+6%) was not enough to offset the weaker publishing & printing segment (-15%). In addition, the current quarter?s result was further impacted by the recognition of a provision for impairment of goodwill, which led to a LBT of RM0.1m.

Malaysian publishing and printing segment?s revenue dipped by 13% YoY to RM717m in FY17 with PBT slipping by 28.6% to RM125m. The group?s operations in Malaysia have been affected by the weak consumer sentiment, which continued to impact the advertising market negatively.

Cautious tone remains. The country?s adex outlook is expected to remain cautious in view of the subdued consumer spending. Meanwhile, China?s tightening its capital outflows policies as well as new administration?s policies in US may have adverse influence to the group?s Greater China and North America operations. In additions, the potential for further substantial cost savings is likely to be limited, after several rounds of cost- cutting measures. Having said that, the group remains hopeful that several adex friendly events (i.e. the potential14th Malaysian General Election; and the 20th anniversary of the establishment of the HKSAR in Hong Kong) could potentially provide some boost to the advertising markets.

Potential goodies post OMG disposal? MEDIAC has completed the conditions precedent agreement (relating to the proposed disposal of 73%- owned Hong Kong-listed One Media Group (OMG) in early March with an aim to complete the whole disposal by 2H-2017. The group is expecting to record a net disposal gain of c.HKD359m (c.USD46.2m or RM0.12/share). Thus, in view of MEDIAC strong balance sheet (net cash of RM162m as of the end FY17) coupled with limited required capex ahead, we do not discount that the group may reward its shareholders further.

Trimmed FY18E PATAMI by 4% after imputing a lower adex revenue assumption. Meanwhile, we also introduce our FY19 forecast, where we expect the group?s PATAMI to inch up by 1.7% YoY to RM81.0m on the back of 2.3% YoY revenue growth.

Source: Kenanga Research - 30 May 2017