MEDIAC’s 1QFY23 results missed expectations as weaker performance from its North America segment offset minor improvements from the economy reopening. Its prospects remain weak as advertisers continue to migrate from the traditional platform to digital media. Its travel business in Hong Kong and China will continue to be weighed down by stringent travel regulations and extreme quarantine policies. We cut our FY23 and FY24 earnings estimates by 88% and 91% respectively, lower our TP by 14% to RM0.155 (from RM0.18). Maintain MARKET PERFORM. Below expectations. MEDIAC’s 1QFY23 came in below expectations as the group remained loss making for the second quarter in a row. The negative variance came largely from a weaker-than-expected recovery in the Malaysian segment following the economy reopening coupled with increased losses from the North America segment as the pandemic subsidies there were reduced.

Results’ highlights. Revenue grew 5.4% YoY as the group saw improvement in its Malaysia and South East Asia (SEA) segment, the largest segment in terms of revenue. The region’s revenue grew by 3.6% YoY as the reopening of the economy benefitted sales volume. The region remained profitable, with earnings growing largely due to improved cost optimisation. The Hong Kong and Mainland China segment returned to profitability as it also benefitted from cost optimisation and wage subsidies from the government. Performance in North America fell greatly as a 10% fall in sales volume coupled with a decrease in subsidies saw losses for the region more than tripled. The group’s travel business saw some recovery in the top-line as countries reopened borders, but overall the segment remained loss-making as it has yet to see significant recovery to pre-pandemic levels. Overall, LATAMI for the group narrowed as earnings improved 83% on the back of the improved contributions from Malaysia, SEA, Hong Kong and Mainland China. However, the group remained loss-making as their North America segment dragged down performance.

Outlook. Overall, FY23 looks to be challenging for the group as it continues to feel the aftershocks of the pandemic. Given the group’s limited recovery in its newspaper printing segment, we expect growth to remain muted as advertisers continue to migrate from the traditional platform to digital media. Coupled with a rising cost of newsprint, the group is expecting margins to tighten moving forward. Furthermore, its performance in North America appears to be on the decline as the lifting of pandemic subsidies eats into the region’s performance. The group is struggling to cover costs in the region as sales volume has yet to see any meaningful recovery. The group’s prospects in Hong Kong and Mainland China also remain mixed as future performance continues to be subjected to political regulations. Recovery in the group’s travel segment hinges on the reopening of the region as a tourist destination. However, given current stringent travel regulations and extreme quarantine policies, the region remains unattractive to tourists. Furthermore, as Hong Kong continues to subsidise wages for operations in the region, a full lifting of pandemic regulations including subsidies could jeopardise performance for the group. If they fail to recapture the business of travellers to the region, it may incur increased losses similar to their North American segment.

Source: Kenanga Research - 30 Aug 2022