MEDIAC issued a profit warning for 1HFY21 to register losses of between USD4.7m-USD5.2m (est. RM19m-RM22m). With 1QFY21 reporting LATAMI of USD5.7m, 2QFY21 is hence implied to be profitable. We did not anticipate the group to return to profitability so quickly, possibly rebounding from the return of adspending. We recalibrate our FY21E/FY22E assumptions by +61%/+631% in lieu of a less bleak adex performance. Upgrade to MP (from UP) with a higher TP of RM0.150 (from RM0.145).

Some uplift expected in 2QFY21. Last Friday, MEDIAC announced its 1HFY21 guidance, expecting to report losses of between USD4.7m-USD5.2m (est. RM19m-RM22m). With 1QFY21 posting a LATAMI of USD5.7m, this implied that 2QFY21 would be profitable, posting earnings of USD0.5m-USD1.0m (est. RM2.1m-RM4.1m). Recall that 1QFY21 suffered from movement restrictions hampering advertising activities, print distribution and shutting down of international travel with the group’s travel segment essentially booking zero tours.

With this new guidance, it is more likely to expect that the print segments are performing better-than-expected. Locally, Nielsen has presented that 3QCY20/2QFY21 netted a c.60% QoQ rebound in newspaper advertising spending. The Hong Kong & Mainland China segment which already saw a 12% QoQ revenue gain in 1QFY21 is expected to continue its momentum. We anticipate the travel segment to remain fairly muted, especially since international travel regulations are still tight.

Amidst ongoing 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.

Post-guidance update, we raise our earnings assumptions by 61%/631% for FY21E/FY22E in lieu of a less bleak performance in the advertising segments. That said, we anticipate FY21 to remain in losses at RM14.6m (-148% YoY) as we believe it is unlikely for the market to experience meaningful recoveries in the immediate term. We continue to expect no dividend payments for FY21/FY22 as the group straps its cash reserve tightly.

Upgrade to MARKET PERFORM (from UNDERPERFORM) with a higher TP of RM0.150 (from RM0.145, previously). Our TP is based on an unchanged 0.4x FY21E P/NTA which is raised by our improved assumptions. For the moment, it seems that the risk-to-reward is balanced, with the lack of dividends being disincentive for investors to accumulate the stock. That said, we believe the group will remain resilient with its solid cash pile to support operational activities for a prolonged period of time. While management is prudent with its investment decisions, there is comfort knowing it can capitalize on attractive strategic opportunities should they arise.

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

Source: Kenanga Research - 9 Nov 2020