MEDIAC issued a profit warning for 1QFY21 to register losses of between USD5.6m-USD6.2m (est. RM24m-RM26m), faulted on the global socio-economic impact of Covid-19. As the quantum is wider than earlier anticipated, we slash our FY21E/FY22E earnings by 519%/94% while meaningful profits may only return in 2HFY22. We also retract our dividends expectation for the time being as the group may prudently conserve cash. Maintain UP with a lower TP of RM0.145 (from RM0.155).

1QFY21 guided to suffer deep losses. Yesterday, MEDIAC announced its 1QFY21 guidance, projecting losses of between USD5.6m-USD6.2m (est. RM24m-RM26m). While losses are well expected to occur during this period (April-June 2020), we believe we might have underestimated the damage dealt by the socioeconomic implications of the Covid-19 pandemic. 1QFY21 bore the full brunt as our local MCO impeded advertising plans and publication sales while international travel restrictions halted the group’s travel segment operations.

Rough road and trying winds. In 1QFY21, MEDIAC had to grapple with insurmountable challenges which we do not anticipate to repeat in subsequent periods. This is most prominent in its travel segment which is believed to register zero tours and bookings during the period, when movement controls were at its peak. As economic activity starts to pick up at the local front with more physical newspapers being pushed, demand for advertising space could slowly be restored. However, we do not anticipate the recovery process to be immediate given consequent impact from closure of businesses and reduction/loss of household income due to the MCO. Additionally, we are not too optimistic of the “HK, Taiwan and Mainland China” print and publishing segment regaining traction as quickly given the heated political landscape there. Similar sentiment is placed on the travel segment as international tourists are demonstrating greater caution fearing the Covid-19 infection risk. That said, travellers could revisit their travel plans if pandemic concerns dissipate.

Strapping up. Amidst the growing challenges, the group is continuing to seek ways to keep its costs lean, with further staff rationalisation being a likely option. Embracing the accelerated digitalisation brought by inbound restrictions, the group is tapping more aggressively into its digital channels to cater to the needs of advertisers. We expect the group to continue its drive to host virtual expos and webinars to build on its digital footprint and presence.

Slashing expectations. In light of this profit warning, we take the cautious step to slash our FY21/FY22E earnings by 519%/94%. Continuing from the deep losses expected in 1QFY21, we anticipate some recovery in subsequent periods, but only enough to prevent greater losses. This could extend to FY22, which could break even on the back of more meaningful top-line recovery across the board. However, taking a more prudent approach to optimise cash conservation, we retract our previous dividend expectations for FY21/FY22 of 0.2sen/0.4sen.

Maintain UNDERPERFORM with a lower TP of RM0.145 (from RM0.155). Our TP is based on an unchanged 0.4x FY21E P/NTA, which is 1SD below the stock’s 3-year mean. While we believe investors might not take too kindly of deeper losses to come, the stock is still cushioned by its 14.0 sen cash per share. This should allow management greater leeway to support working capital needs or grab cheap deals in the market to ride through the storm through the medium term. That said, potentially missing out on a solid dividend (as previously declared) could be another deterrent

Source: Kenanga Research - 23 Jul 2020