Media Chinese Int’l (MEDIAC) posted a disappointing report card for FY19. Moving forward, the prolonged weak consumer spending coupled with a shift in advertisement trend to digital space continued to pose great challenges to the group. We have slashed our FY20E numbers by 21% post the earnings model updates. With no immediate catalyst in place, we maintain our MARKET PERFORM call but with a lower TP of RM0.200.

Hit by impairments. FY19 core PATAMI of RM27m (-54% YoY) came in below expectations at 74%/68% of our/street’s full-year estimate. On our end, the key negative was mainly due to the lack of economies of scale followed by the muted turnover growth coupled with persistently higher OPEX. On the reported basis, it suffered LATAMI of RM46.2m, mainly attributed to a provision for impairment of goodwill and certain plant & machinery totaling of RM73.4m in 4Q19 (mainly arising from its Sin Chew operation). A 0.41 sen dividend was announced (with ex-date set on 19 June), bringing the full-year DPS to 1.14 sen (FY18: 1.76 sen), slightly lower than our earlier estimate of 1.34 sen.

YoY, FY19 revenue was relatively flat at RM1.17b (+0.2%) as the growth in tour segment (+22%, on higher incentive tours and regular tours during the FIFA World Cup as well as higher demand to Europe) was largely offset by its publishing and printing division (-8%, no thanks to the persistently weak ads revenue). Despite relatively muted revenue growth, its core PATAMI dipped by 54% to RM27m as the lower publishing and printing segment’s PBT offset the savings from the Group’s cost reduction efforts. During the year, the US dollar weakened against the RM but strengthened against the Canadian dollar, resulting in net positive currency impact of c.USD2.4m and USD1.6m on the group’s turnover and LBT, respectively. QoQ, 4Q19 turnover dipped by 15% as a result of the continued weak adex performance coupled with a seasonally low performance of its tour segment. The group recorded a LBT of RM77m (vs. 4Q18: -RM82m) in 4Q19, mainly resulting from the provisions for impairment of goodwill and certain plant & machinery totaling RM74m (vs. –RM105m in 4Q18). Stripping off the EI items, the group’s PBT recorded at – RM3.2m in 4Q19 as compared to RM23m a year ago.

Challenging outlook remains. Management expects the operating environment to remain challenging amid the on-going trade tension between China and the US as well as the uncertainty of the global economy. Having said that, the group is set to remain focused on growing its core businesses while seeking growth opportunities in new markets and channels. For its publishing business, it will continue to work on improving its content to meet the demands of readers and devising new advertising options for advertisers. For the travel segment, the group is set to continue to develop and offer interesting and tailor-made tour packages to lure customers with exclusive travel experiences.

Trimmed FY20E PATAMI by 21% after revising our OPEX assumptions. Besides, we also do not discount further impairments in coming years given the group is still sitting on USD9.1m of intangible assets as of end FY19. Meanwhile, we also take this opportunity to introduce our FY21E numbers.

Maintain MARKET PERFORM with a lower TP of RM0.200 (from RM0.230 previously), based on lower targeted P/NTA of 0.50x (vs. 0.52x previously), implying c.-1.5SD below its 3-year mean. We believe the valuation attached is justifiable given MEDIAC’s challenging operational outlook with the decent dividend yield appears the only saving grace for now. 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 May 2019