MEDIAC’s FY23 results disappointed as the group fell into losses during 4QFY23. Despite the growth in revenue, the group struggled to perform as the dial-back of pandemic subsidies resulted in its foreign operations falling into the red. We now project a loss in FY24F, lower our TP by 6% to RM0.15 (from RM0.16) but maintain our MARKET PERFORM call.

Below expectations. MEDIAC’s FY23 results was a wash out, accounting for only 16% of our forecast. The variance against our forecast came largely from the significant losses during 4QFY23 following the dial-back of pandemic subsidies.

YoY. FY23 revenue grew 16%, driven mainly by domestic revenue and the minor recovery of the travel segment. Its earnings in Malaysia grew by 17% as the nation fully transitioned to the endemic phase. The group’s Hong Kong and Taiwan operations remained marginally profitable. However, the segment fell into losses during 4QFY23, resulting in full-year earnings dropping significantly. The group’s American operations also saw losses widening to USD3.4m. The widening of losses is largely attributable to the dial-back of pandemic subsidies which had previously cushioned the drop in revenue across multiple regions. Otherwise, revenue from its travel segment grew >8x following the resumption of international travel. However, the segment remained in the red, with losses narrowing to USD0.7m. Net profit inched up to RM1.6m from RM0.4m a year ago.

QoQ. 4QFY23 revenue dropped 9% following contractions across Malaysia, Hong Kong and Taiwan. Its earnings in Malaysia fell 58% following a 13% contraction in revenue while the Hong Kong and Taiwan segment fell into losses during 4QFY23. This is largely attributable to the dial-back of pandemic subsidies in the region as well as increased provisions for retirement of long-standing employees. Otherwise, the group’s travel segment and American operations remained loss making, reporting losses of USD0.3m and USD0.5m, respectively. Overall, the group fell into the red during 4QFY23, reporting a core net loss of RM7.2m vs. a core net profit of RM3.8m the previous sequential quarter.

Outlook. We remain cautious on the group’s prospects, especially given the overhanging issue of costs for its foreign operations. While the group had previously been able to roughly break even, the absence of subsidies has resulted in its overseas operations falling into losses during 4QFY23. Barring an unexpected uptick in activity in said regions, the group’s foreign segments could prove to be a drag on earnings as it has seen limited growth in sales volume so far.

The outlook for its Malaysia segment is slightly brighter, though still overall mixed.While the group has reported stronger earnings out of the region; adex is expected to taper off in FY24. The softer macroeconomic outlook and limited catalysts given the lack of sporting events will dampen growth prospects. Furthermore, if the group’s foreign operations continue to lag behind, it could see any improvements from its Malaysian operation offset by the widening losses

Forecasts. We now project a loss in FY24F and introduce our FY25F forecasts.

Consequently, we lower our TP by 6% to RM0.15 (from RM0.16) based on 0.4x FY25F 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. Maintain MARKET PERFORM

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 - 30 May 2023