Media Chinese Int’l’s (MEDIAC) 1Q19 result came in within expectations. Moving forward, the prolonged cautious mode adopted by advertisers coupled with advertisement trend shifting to digital media continues to pose great challenges to the group. We have reduced our FY19E numbers by 5% but retained our FY20 forecasts. Maintain UNDERPERFORM rating with unchanged TP of RM0.250.

In-line. 1Q19 core PATAMI of RM12.3m (29.6% YoY) came in largely within expectations at 31%/30% of our/consensus’ full-year estimate (thanks to the seasonally strong contribution from its travel segment) as we believed the group’s publishing and printing business continued to face a challenging operating environment. No dividend was declared for the quarter, as expected.

YoY, 1Q19 revenue improved by 11.2% to RM331m, mainly attributed by the travel segment which recorded a strong jump of 33% to RM124m as a result of higher demand for its European, China and incentive tours. The group’s publishing and printing segment increased marginally by 1.4% to RM207m as a result of better contribution from the Malaysian operations (+3.4% to RM141m, as a result of higher circulation revenue followed by cover price hike since March 2018 and continued growth in digital business) but partially offset by the continued weaker contribution of Hong Kong and North American operations. The improvement in turnover resulted in the group’s PBT climbing by 26% to RM23m. Both the publishing and printing segment and the travel segment reported better results with increases in segment PBT of 8.9% and 55.4%, respectively.

QoQ, 1Q19 turnover advanced by 29% as the strong contribution of its travel segment (+209%) was enough to offset the lower publishing and printing segment. PBT, meanwhile, has returned to the black to RM19.7m (vs. LBT of RM84.4m, mainly impacted by the recognition of impairment losses on goodwill and plant & machinery as well as gain on disposal of investment, which resulted in a negative impact of RM93m) as a result of the stronger turnover that was mainly driven by the travel segment.

Lackluster outlook remains. Management expects its publishing business 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. This is exacerbated by the rising newsprint price (from c.USD500/MT in early 2018 to USD600/MT currently due to the supply shortage globally) coupled with market uncertainties due to looming trade wars and Malaysia’s recent change of government.

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. The group also plans to grow its travel business by rolling out more appealing tour packages while at the same time enhancing its yield.

Trimmed FY19E PATAMI by 4.6% to RM38m after raising our newsprint price assumption to USD600/MT (vs. USD570/MT previously) but retain our FY20E PATAMI unchanged at RM48m (as we had imputed USD600/MT newsprint assumption into our model earlier).

Maintained UNDERPERFORM with an unchanged TP of RM0.250, based on targeted FY19E P/NTA of 0.55x (vs. 0.62x previously), implying an unchanged -2 standard deviation below its 3-year mean. Key upside risks to our call include: (i) higher-than-expected adex revenue, and (ii) better-than-expected margins following various cost initiative plans. Key earnings downside risks include: (i) persistent weakness in the print adex outlook, and (ii) higher-than-expected newsprint price.

Source: Kenanga Research - 29 Aug 2018