MEDIAC issued a profit warning for FY21 to register a LATAMI of not more than USD2.0m (est. RM8.4m). With 9MFY21 posting a LATAMI of USD3.5m, this suggests that 4QFY21 would be profitable, posting a profit of not less than approximately USD1.7m. The rise in earnings is mainly due to the gradual economic recovery in Hong Kong and cost savings measures taken across all its business fronts. We believe the economic recovery in Malaysia gave a boost to earnings as well. We maintain MARKET PERFORM with a TP of RM0.190.

4QFY21 guidance in line. Yesterday, MEDIAC announced their upcoming 4QFY21 earnings guidance. In the announcement, the group is guiding a profit of not less than approximately USD1.7m (est. RM7.1m) for their 4QFY21. With 9MFY21 posting a LATAMI of USD3.5m this implies that MEDIAC would register a LATAMI of not more than USD2.0m in FY21. The estimate is in line with our expected full- year LATAMI of USD1.8m (est. RM7.5m).

YoY, the group’s earnings had risen by approximately more than 195% (4QFY20: LATAMI of RM1.8m) and this was predominately attributable to the gradual economic recovery in Hong Kong (1QCY21 GDP rose by 7.8% after registering a decline in GDP for six straight quarters) and cost savings practised across all the group’s business operations. Despite the re-implementation of MCO in 1QCY21 in Malaysia, the economy contracted by 0.5% compared to -3.4% in 4QCY20 (QoQ growth: +2.7%), signalling improvement in all economic sectors. With business conditions improving in both Hong Kong and Malaysia, we believe this resulted in more newspapers and magazines being published along with a potential recovery in consumers’ purchasing power that prompted advertisers regaining their appetite. As for the travel segment, we believe it remained muted QoQ as international travel was restricted in many countries in 1QCY21.

Strategies in place. While the group is heavily involved in implementing cost management initiatives such as reducing staff force, the group continue to seek ways to grow its digital audience and revenue to adjust to the new norm. Notably, the group organised a virtual expo and webinar last year while its Hong Kong segment launched an e-commerce platform, Power Up Store, in 2020.

Post guidance, we made no changes to our earnings estimates.

Maintain MARKET PERFORM with a TP of RM0.190 based on FY22E P/NTA of 0.5x (in-line with its 3-year mean). Recall that we upgraded MEDIAC from UNDERPERFORM to MARKET PERFORM in our latest Sector Report (6 April 2021) as we believe its travel segment is set to recover from 2HCY21 onwards as countries worldwide are gradually relaxing their international border restrictions (e.g. European Union is looking to welcome visitors from countries with low COVID-19 cases and those whom have been fully vaccinated as early as May 2021, USA and Canada are in talks to reopen the land border for non- essential travel by June 2021 whereas New Zealand had opened their borders with Australia beginning 19 April 2021). In addition, should the need to capitalize on attractive investment opportunities arise, the group is backed by a solid cash pile which stands at 14.0 sen per share.

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 - 12 May 2021