Media Chinese Int’l (MEDIAC)’s 9M18 core PATAMI came in within expectation. The prolonged subdued consumer spending coupled with a shift in advertisement to digital media continued to pose great challenges to the group. We made no changes to our FY18E numbers but reduced our FY19E PATAMI by 1% post the earnings model updates. Maintain MARKET PERFORM rating with unchanged TP at RM0.35.

Within our but below the street expectations. 9M18 core PATAMI of RM34.3m (-41% YoY) came in within our but below consensus full-year estimates (at 84%/69%) as we believe the market has underestimated its OPEX. Note that the group’s 9M normally made up c.82-90% of the full- year PATAMI, in the past three years. As expected, no dividend was declared during the quarter as the group normally rewards shareholders during 2Q and 4Q of each financial year.

YoY, 9M18 revenue slipped 8% to RM896m, no thanks to the weaker lion’s share publishing and printing segment (-13.6% to RM633m) despite better performance in the travel segment (+10%). The group’s publishing and printing segment continued to be affected by the decline in advertising expenditure as a result of unfavourable business environment as well as the structural shift to digital media. On the other hand, its Tour division saw an improvement of 10% (to RM263m) at the top-line, underpinned by better outbound travel business for the North America tour operations followed the stronger US dollar and CAD. At the pre-tax level, PBT dropped by a larger quantum of 36% as a result of unfavourable exchange rate as well as lower GP margin. Stripping off the currency impact, 9M18 turnover would have weakened by 7% while its PBT would have dropped by 34%.

QoQ, 3Q18 turnover weakened by 15% as the higher overseas printing and publishing business turnover (+1.2% to RM73m) was not enough to offset the lower contribution from Malaysia (-0.4% to RM143m) as well as the travel segment (-47% to RM59m due to post peak traveling season). PBT, meanwhile, was reduced by 16% on a fewer turnover coupled with lower margin recorded in the publishing and printing as well as the tour segments.

Ominous sentiment remains. While we expect the country’s gross adex (ex-Pay TV) to climb 4.5% YoY in CY18 (as a result of the low base effect and pre-14th General Election-led adex push), the overall adex outlook is expected to remain cautious in view of the subdued consumer spending and the continuing shift of print advertising dollars to the digital media. In addition, newsprint price is expected to continue its upward trend, which could further put pressure on the group’s performance. The group’s travel segment, meanwhile, is also expected to continue to face challenges of competition from airlines, reducing margins and travel restrictions imposed by the US government, which could limit travelers’ desire to travel.

Potential decline in circulation volume could impact MEDIAC’s adex. The upcoming newspapers’ cover price hike (+20.0 sen, w.e.f. early March) could potentially cause some price-sensitive readers to shift away from the traditional platform to the digital media. Thus, a potential decline in MEDIAC’s newspaper circulation volume may have a negative impact to the group’s adex revenue moving forward given advertisers’ tendency to seek for higher publication media medium to publicize products.

Retained FY18E numbers but reduced FY19E PATAMI by 1% after revising our FY19 newspapers’ circulation and newsprint consumption assumptions. Maintained MARKET PERFORM with unchanged TP at RM0.35 based on a targeted FY19E PER of 11.4x (implied an unchanged -1x Standard Deviation below its 5-year mean). With the lack of key earnings catalyst ahead, a decent dividend yield of c.5% appears to be the only saving grace for the stock. Key downside risks to our call include: (i) weaker-than-expected adex outlook, and (ii) higher-than-expected OPEX.

Source: Kenanga Research - 27 Feb 2018