9MFY20 PATAMI of RM36.2m (+14%) was higher-thanexpected due to better margins and more favourable taxes. The print and publishing business should continue to see top-line challenges, but supported by a better cost environment. While the travel segment will likely be dampened by Covid-19, tax relieves should aid the group meaningfully. Upgrade to OP (from MP) with a higher TP of RM0.245 (from RM0.240) post-earnings upgrade.

9MFY20 greatly outperformed. 9MFY20 PATAMI of RM36.2m surpassed expectations, making up 111%/115% of our/consensus respective full-year estimates. The positive deviation appears to be due to: (i) our overly conservative margin assumptions across all segments and (ii) better-than-expected effective tax exposure during the period. No dividend was announced, as expected.

YoY, 9MFY20 revenue dipped to RM822.1m (-13%) as a result of lower overall sales across all of its print and publication regions (Malaysia & Other S.E. Asian countries, HK & Mainland China, North America) as advertising demand skew towards non-traditional platforms. That being said, 9MFY19 was aided by the 2018 General Elections and World Cup. Meanwhile, the travel services segment was adversely affected by the political unrest in Hong Kong. Although PBT declined by 12% from the lower topline, thanks to successful tax refunds and incentives, 9MFY20 PATAMI registered a 14% growth to RM36.2m.

QoQ, 3QFY20 revenue declined by 23% mainly due to much weaker contributions from the travel segment (-53%) while the print business remained relatively flat. However, thanks to better cost environment in local operations arising from cheaper new prints and manpower costs, 3QFY20 PATAMI came in at RM13.7m (+7%).

Rooted against headwinds. Traditional media businesses continued to see diminishing relevance with adex trend progressively shifting towards digital channels. The group, in particular, also appears to be at the receiving end from the unrest in Hong Kong with the recent Covid- 19 outbreak looking to cause even more damage to its travel segment. With this, the group looks to salvage profits via ongoing cost optimization efforts. In the meantime, the group is embarking to building its digital presence by offering one-stop solutions on its existing news platforms. Also, recent tax incentives look to alleviate bottom-line pressures for the medium term.

Post-results, we raise our FY20E/FY21E earnings by 30%/6% on less conservative margin assumptions and lower effective taxes. For now, we project FY21 to see a 10% decline in earnings stemming from the recent Covid-19 exerting a detrimental impact to the travel segment.

We upgrade our call to OUTPERFORM (from MARKET PERFORM) with a slightly higher TP of RM0.245 (from RM0.240, previously). Our TP is pegged on an unchanged 0.6x FY21E NTA (0.5SD below its 3-year mean). At present, it appears the stock’s profitability could be less doubtful given its recent performance amidst the challenging market environment, possibly leading to a return of investors’ interest. High dividend yield prospects at c.7% could also attract yield-hungry investors. The group also possess solid net cash per share of c.16.0 sen, though we believe the reserve is needed to fund the group’s digital thrust.

Key risks to our call include: (i) lower-than-expected adex revenue, (ii) lower-than-expected travel services business, and (iii) higher-thanexpected operating expenses.

Source: Kenanga Research - 28 Feb 2020