While strong travel segment’s contribution sustained Media Chinese Intl’s (MEDIAC) earnings in the 1H19, its momentum, however, is not expected to sustain into 2H due to the slow travel season coupled with the prolonged cautious mode adopted by advertisers. Post results review, we have reduced our FY19-20E earnings by 3-24%. With no immediate catalyst in place, we downgrade the stock rating to UNDERPERFORM with lower TP of RM0.150.

In line but expect weaker 2H. 1H19 core PATAMI of RM25m (5.5% YoY) came in within expectations at 65%/60% of our/consensus’ full- year estimate (thanks to the seasonally strong contribution from its travel segment). The stronger 1H performance, however, is not expected to sustain into 2H given the group’s publishing and printing business is continued facing a challenging operating environment, while its travel segment is entering into a slow travel season. The group has declared a 0.722 sen (or US0.18 cents) interim dividend (with the ex-date set on 12 December), which came in within expectation and made up 54% of our full-year DPS.

YoY, 1H19 revenue improved by 9% to RM694m, mainly attributed by the travel segment which recorded a strong jump of 33% to RM276m as a result of an increase in incentive tours and tours for the FIFA World Cup, which was a tourism-boosting event. The group’s publishing and printing segment revenue weakened by 2.3% to RM417m as a result of lower contribution from all markets. Despite higher revenue, PBT merely climbed 3% to RM38m due to the thinner margin recorded in the travel segment.

QoQ, 2Q19 turnover increased by 4% as the better contribution of its travel segment (+17%, thanks to the increase in incentive tours and the FIFA World Cup event) which was enough to offset the lower publishing and printing segment. PBT, however, dipped by 11% due to a higher provision for impairment and write-off of trade and other receivables.

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 will reshape the media industry. This is exacerbated by the rising newsprint price (from c.USD500/MT in early 2018 to more than USD600/MT currently due to the supply shortage globally) coupled with market uncertainties due to trade wars.

Having said that, we understand that MEDIAC is set to continue its cost-containment efforts whilst developing and enhancing its digital content and platform capabilities. It will also focus on nurturing new revenue generating activities such as event management. 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 FY19-20E PATAMI by 3-24% to RM37-36m, respectively, after lowering the publishing and printing as well as the travel segment revenues. Besides, we also revised our tour segment’s GP margin assumption to reflect the latest trend.

Downgrade to UNDERPERFORM (vs. MARKET PERFORM previously) with a lower TP of RM0.150 (from RM0.250 previously), after shifting the valuation base year to FY20 with lower targeted P/NTA of 0.36x (vs. 0.55x previously), implying an unchanged -2SD 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 - 30 Nov 2018