While strong travel segment’s contribution sustained Media Chinese Intl’s (MEDIAC) earnings in the 1H19, its momentum, however, had slowed down in 3Q, which will likely continue in 4Q due to the slow travel season coupled with the prolonged cautious mode adopted by advertisers. Post results review, we tweaked our FY19-20E earnings by +2% each. With no immediate catalyst in place, we maintain our UNDERPERFORM call but with higher TP of RM0.230.

Largely in line but expects a seasonally weaker 4Q. 9M19 core PATAMI of RM32m (-9% YoY) came in largely within our expectation at 86% but below consensus’ full-year estimate (at 74%). Note that, the group’s 4Q is normally a low season for both the advertising and travel businesses and contributed less than 20% to the full-year numbers based on the past 5-year historical financial performance. As expected, no dividend was declared during the quarter as the group normally rewards shareholders during 2Q and 4Q of each financial year.

YoY, 9M19 revenue improved by 4% to RM957m, mainly attributed to the travel segment which recorded a strong jump of 28% to RM343m as a result of an increase in incentive tours and regular tours during the FIFA World Cup and higher demand to Europe as well as designed tour programs. The group’s publishing and printing segment revenue weakened by 5.2% to RM614m as a result of lower contribution from all markets. Despite higher revenue, PBT dipped by 8% to RM51m due to the thinner margin recorded in the Print segment. QoQ, 3Q19 turnover plunged by 26%, no thanks to the 55% dip in the travel segment turnover as the immediate preceding quarter was boosted by the summer holidays, which is normally the peak period for the travel business. The group’s publishing and printing segment declined 4.3% as the slowdown in external trade and domestic demand weighed on the Malaysian economy which subsequently affects the market’s advertising expenditure. There was no significant currency impact on the group’s financial results for the quarter under review.

Entering a seasonally slow quarter. MEDIAC expects its publishing and travel segments to remain challenging in 4Q amid continued weak adspend and seasonal factor. Having said that, the current lower newsprint price is expected to provide some cushions to its earnings and improve the profitability of the group’s publishing businesses. Furthermore, MEDIAC will continue its cost-containment efforts whilst developing and enhancing its digital content and platform capabilities. The group also plans to grow its travel business by rolling out more appealing tour packages while at the same time enhancing its yield.

Marginal tweaks. We have tweaked our FY19-20E PATAMI marginally by 2.1%/1.7%, respectively, to RM37-36m, respectively, after incorporating 3Q19 numbers and some fine-tunings.

Maintain UNDERPERFORM with a higher TP of RM0.230 (from RM0.150 previously), based on higher targeted P/NTA of 0.52x (vs. 0.36x previously), implying c.-1SD below its 3-year mean. The higher targeted P/NTA is c.30% higher than the recent M&A transaction where 31.6% stake of Utusan Melayu Bhd’s (which publishes the Utusan Malaysia Malay-language daily) changed hand at 19.0 sen per share (or implied c.0.4x P/NTA). We believe the premium attached is justifiable given MEDIAC being in a much better financial position than Utusan, which currently is still loss-making.

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 - 26 Feb 2019