Media Chinese Int’l (MEDIAC) posted a disappointing report card in FY18. Moving forward, the prolonged weak consumer spending coupled with a shift in advertisement to digital media continued to pose great challenges to the group. We have slashed our FY19E numbers by 25% post the earnings model updates. Maintain UNDERPERFORM rating with lower TP of RM0.250 post revamping our valuation method to P/NTA (vs. P/BV previously).

Miss expectations. FY18 core PATAMI of RM35.6m (-47% YoY) came in below expectations at 87%/79% of our/consensus’ full-year estimate, no thanks to the lower-than-expected turnover from the publishing and printing segment coupled with higher-than-expected OPEX. On the reported basis, it suffered LATAMI of RM44.4m, mainly attributed to a provision for impairment of goodwill of RM80.0m (mainly arising from its Sin Chew operation), of which c.RM20m was derived from impairment of plant and machinery. A 0.74 sen dividend was announced (with ex-date set on 18- June), bringing the full-year DPS to 1.66 sen (FY17: 2.78 sen), largely inline with our earlier estimate of 2.0 sen.

YoY, FY18 revenue slipped 6% to RM1.1b, no thanks to the weaker lion’s share publishing and printing segment (-10% to RM812m) despite better performance in the travel segment (+8% to RM289m). 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 following the rising demand in online shopping. On the other hand, its Tour division saw an improvement of 8% at the top-line, underpinned by the recovery of travel to Europe and better outbound travel business for the North America tour operations. At the operating profit level, it fell into a loss of RM16m (vs. EBIT of RM97m a year ago) owning to RM80m impairment of goodwill. Excluding the impairment of goodwill, the group’s EBIT was RM64m, reflecting a YoY decline of 42% as a result of higher OPEX. During the year, both RM and the CAD strengthened mildly against the USD. Stripping off the currency impact, FY18 turnover would have strengthened by c.0.6% while its PBT would have dropped by <1%.

QoQ, 4Q18 turnover lowered by 6% as the higher Malaysia printing and publishing business turnover (+9% to RM148m) was not enough to offset the lower contribution from oversea (-15% to RM59m) as well as the travel segment (-31% to RM39m due to post peak travelling season). PBT, meanwhile, had fallen into the negative territory on a lower turnover coupled with the provision of impairment and higher OPEX.

Challenging outlook remains. Management expect both publishing and travel businesses to remain challenging amid weak consumer sentiment and rising costs of doing business as well as new technologies that continue to reshape the media industry. Despite the improvement in the general economy of the operating countries, such improvement has not benefited to the group as the sectors in which the group’s advertisers remain subdued. On top of that, newsprint prices are set to rise due to a supply shortage, which could have an adverse impact to the group. Having said that, we understand that MEDIAC is set to continue to converge on its print segment with the digital businesses and intensify cost-cutting efforts, particularly in streamlining its printing process in Malaysia.

Trimmed FY19E PATAMI by 25% after imputing a lower adex revenue and higher OPEX. Besides, we also do not discount further impairments of goodwill in FY19 in view of the challenging operating environment. Meanwhile, we also take this opportunity to introduce our FY20E numbers.

Maintained UNDERPERFORM with a lower TP of RM0.250 (vs. RM0.350 previously) after revamping our valuation method to P/NTA (from P/BV previously) methodology to better reflect the group’s current development as well as the price movement. Our target price is based on targeted FY19E P/NTA of 0.62x, implying a level that is >2SD below its 3-

year P/NTA average to reflect the negative drift (or trend) of its valuation.

Source: Kenanga Research - 31 May 2018