Media Chinese Int’l (MEDIAC) posted a report card that is broadly within expectation. Moving forward, we believe the blurry outlook would persist as results from the digital scene can only be seen in the longer term. On the flipside, we are more optimistic on the travel segment to trail positively in the medium-term. While me maintain our TP of RM0.165, we upgrade our call to Market Perform as negatives could be well accounted for at this price level.

Broadly within. 3M20 core PATAMI of RM9.4m (-25% YoY) came at 32%/36% of our/market’s FY20 estimates. We deem the results to be broadly within our estimate as the group faces a seasonally stronger 1H due to the spring season, mainly from its travel segment. As expected, no dividends were announced during the quarter.

YoY, 1Q20 top-line came in at RM296.1m (-12.7%), which is mainly attributed to the decline in overall publishing and printing business, as seen gross all regions. We attribute the poorer industry performance on softer demand for traditional adex spaces in favour of digital platforms. Group PBT fell by 39% to RM13.4m, in line with the lower revenue. However, cushioned by lower ETR of 34.2% (-7.3ppt), 1Q20 core PATAMI declined by 25% at RM9.4m.

QoQ, the group turnover jumped to RM296.1m (+32%), mainly fuelled by the growth in its travel segment (+242%) thanks to peak travelling during the spring season. This led to growth in core PATAMI as well, which came in at RM9.4m as compared to 4Q19 core LATAMI of RM4.4m, adjusting for its impairments on goodwill, plants and machinery.

Picking the right battles. Amidst top-line struggles, the group aims to contain its operating expenses and direct cost to stay profitable. However, it is likely that any savings could be directed towards expanding other channels (i.e. digital capabilities) to reduce its dependency on traditional platforms. We see this similarly occurring with MEDIA, which are in part focused in realising its business transformation journey (Odyssey) to expand its digital and commerce presence but are at the same time held back by drastic shortcomings of its traditional businesses. Over on the travel segment, while near-term uptake could be hampered by on-going global trade spat and volatile foreign currencies, we believe pressures could ease given time, hence reinvigorating the segment.

Having said that, we made no changes to our FY20E/FY21E numbers as we believe the cut in earnings in the previous results note for 4Q19 is adequate. However, should the subdued adex outlook persist as seen in Nielsen’s CY1H19 numbers, we do not discount the possibility of re-looking into our estimates in the coming quarter.

We upgrade our call to a MARKET PERFORM with an unchanged TP of RM0.165 based on an unchanged 0.4x FY21E P/NTA (-1.5SD over its 3-year Fwd. Avg.). While investors could be overall passive on the stock’s high exposure to traditional media segments as well as having an exposure in Hong Kong (amidst the political tensions there), we believe the stock could have achieved a sustainable equilibrium in its cost management, further helped by its diversified businesses.

Key risks to our call include: (i) higher/lower-than-expected adex revenue, and (ii) better/lower-than-expected margins following various cost initiative plans.

Source: Kenanga Research - 29 Aug 2019