MEDIAC’s 9MFY23 results beat expectations, thanks to strong domestic performance. Looking forward, muted adex growth prospects in Malaysia are unlikely to significantly cushion the losses from its overseas operations. We raise our FY23-24F net profit by 20% and 10%, respectively, but maintain our asset-based TP of RM0.16 and MARKET PERFORM call.

Above expectations. MEDIAC’s 9MFY22 results beat our expectation, already meeting our full-year forecast and coming in at 80% of the full-year consensus estimate. The positive variance came largely from stronger than-expected earnings from the Malaysian segment.

YoY. Revenue grew 17.7%, driven mainly by domestic revenue as well as the minor recovery of its travel service segment. Profit before tax for the Malaysia segment grew 47.5% on the back of increased advertising revenue as sales of printed and digital media remained relatively flat YoY. Elsewhere, revenue from Hong Kong and Taiwan remained flat YoY (- 0.8%) though earnings more than doubled in the region on the back of wage subsidies. The group’s North American operation remained loss making, with losses widening to USD3m during 9MFY23 after the lifting of subsidies cause it to fall into the red. Additionally, the travel services segment saw revenue grow >8x as economies reopened. While the segment was still loss-making, it seems to have achieved its break-even point during 3QFY23.

Overall, net profit grew 76.6% following the stronger performance from the Malaysia segment. While foreign losses dragged down performance, the group remained profitable as its largest segment continued to perform.

QoQ. Revenue dropped 9.9% following contractions in Hong Kong and Taiwan. Revenue in the region fell 16.3% and the group reported negligible earnings for the segment. Conversely, Malaysia revenue grew 5.3% as the group saw increased advertising revenue during the election season. Additionally, the travel services segment reported negligible gains, breaking even for the first time since the start of the pandemic. Overall, earnings fell 41% as the contractions in Hong Kong and Taiwan offset growth elsewhere.

Outlook. We remain cautious on the group’s prospects, especially given the overhanging issue of costs for its foreign operations. While its operations in Hong Kong and Taiwan have remained profitable, performance during 3QFY23 saw the region barely breaking even. Given the fact that historically the region was unprofitable at current levels, we remain wary of rising costs pushing the region into losses, especially given the group’s performance in North America.

Conversely, the outlook for its Malaysia segment is slightly brighter which has continued to record stronger profits, even amidst rising costs due to global supply chain disruptions. However, expecting a somewhat muted adex growth in CY23 due to the cloudier macroeconomic outlook, growth in the region may not be enough to offset any further losses from the group’s foreign operations.

Forecasts. We increase our FY23F/FY24F forecasts by 20%/10%, largely to reflect stronger performance of its domestic operation.

Maintain MARKET PERFORM with an unchanged TP of RM0.16 based on an unchanged 0.4x FY23F P/NTA, in line with the sector’s historical average. There is no adjustment to our TP based ESG given a 3-star rating as appraised by us (see page 4).

We continue to like MEDIAC for its: (i) position as a proxy to rebounding adex, and (ii) leading position in the Chinese newspaper market. However, given some expected challenges in the near-term and the cloudier long-term outlook for traditional media, we remain cautious on the group’s prospects.

Key risks to our call include: (i) the accelerated demise of the traditional media, (ii) high newsprint cost, (iii) unfavourable forex movements, (iv) non-renewal of operating licenses, and (v) limited recovery in international tourism.

Source: Kenanga Research - 28 Feb 2023