MCIL’s 1Q14  results  were  in  line  with  our  and  consensus  forecasts. Earnings  were  mainly  from  Malaysian  operations  –  driven  by  General Election  (GE13)-related  expenses  –  and  higher  contribution  from  the travel  segment.  The  Hong  Kong  and  North  American  print  business remains  challenging.  Maintain  NEUTRAL,  FV  revised  down  to  MYR1.06 (from MYR1.31).   
 
- Earnings in line. MCIL’s 1Q14 net earnings of MYR42.1m (-0.7% q-o-q; -13.5% y-o-y) were in line with our and  street estimates. Topline inched up 17.2% q-o-q to MYR399.2m, due to higher revenue contribution from its  Malaysian operations  (+5.0%  q-o-q) and  travel  segment (+5.5% q-o-q).  However,  this  was  offset  by  lower  contributions  from  the company’s Hong Kong (-10.9% q-o-q) and North American operations (-4.4% q-o-q).

- Operations  overview.  MCIL’s Malaysian operations’ revenue benefited from  an  increase  in  GE13-related  advertising  expenditure  (adex). However,  its  Hong  Kong  business  still  faces  challenges,  mainly  due  to the downturn in the local property market and the Chinese Government’s clamp down on extravagant spending. Besides, Hong Kong’s print media business is very competitive, with the free papers capturing a substantial adex market share. Its North American business continues to be affected by  the  region’s  sluggish  economic  conditions.  However, MCIL’s  travel segment delivered a solid 1Q14 performance, with revenue rising +6.1% y-o-y  and  PBT  climbing  37.1%  y-o-y  on  the  continuing  popularity  of Europe  and  other  long-haul  tour  destinations  among  its  Asia-based customers.

- Key  risks. These are: i) possible newsprint price escalation, ii) volatility in  the  USD-MYR  exchange  rate,  and  iii)  slower  than  expected  adex recovery, especially in the print media segment.  

- Maintain  NEUTRAL,  FV  revised.  While  MCIL  is  still  able  to  generate strong  cash  flow,  we  think  it  still  lacks  growth  catalysts.  Hence,  we maintain  our  NEUTRAL  recommendation  and  earnings  forecast,  but revise  downwards  our  FV  to  MYR1.06  (from  MYR1.31),  pegging  it  to 11.7x CY14F P/E (from 14.7x), which is the mean of its 5-year historical P/E trading band (previously +0.5SD from the mean).

Source: RHB