Media Chinese - Q1-Lifted by Travel HOLD, 27 Aug 2015 (AMENDED COPY)

Media Chinese: Q1: Lifted by Travel       HOLD

We maintain HOLD on Media Chinese International (MCIL) with a lower fair value of RM0.55/share (vs. RM0.70/share previously) on the back of the current challenging business and adex climate. MCIL’s 1QFY15 core net profit of RM33.4mil (+6.6% YoY) came in within both our and consensus estimates. This is despite revenue dipping to RM377.2mil (-13.4% YoY).  Nielsen’s reported newspaper adex declined by -11% YoY in the April-June 2015 period.

MCIL’s 1QFY15 slight increase in profit YoY was largely attributed to a strong performance of its travel business and overall better operating cost management. The travel segment’s PBT was up RM4.2mil as a result of expanding margins from its customised US tours.

Revenue for MCIL’s Malaysia operations deteriorated by a steep 21.3% YoY, led by the weaker consumer sentiment after the implementation of GST in April, as well as domestic and global uncertainties. However, its PBT only declined slightly by 2.6% YoY due to MCIL’s better cost controls. 

Operations in Hong Kong continued to be weighed down by the weak retail environment especially for luxury and high-end goods, with profits declining by RM2.3mil YoY. The situation is not anticipated to improve soon largely due to the anti-corruption crackdown in China. In addition, China’s economy is slowing down and the Renminbi has depreciated. To diversify its earnings, MCIL is dabbling into the education sector and is currently finalising a deal with a large group in China for primary schoolbooks, estimated to generate an additional ~HKD10mil/annum.

Earnings outlook in Malaysia remains muted as consumer sentiment remains low. The recent heavy depreciation of the ringgit may prolong the weak sentiment and hamper consumer spending due to increased costs of buying imported goods.

A potential re-rating catalyst for MCIL is its possible venture to redevelop some of the properties which it owns. Management mentioned in the last briefing that they have been approached by a property developer to redevelop one of its properties. MCIL’s freehold land size is known to be 269,000 sqft. This move could positively diversify and improve earnings, as successfully done by other media groups in Singapore.

MCIL’s yield stands at 7%, with a cash pile of RM5mil. MCIL is currently trading at an undemanding FY16F PE of 6.5x, at the lower end of its 5-year historical PE band of 6x-10x. Media Prima and the Star are currently trading at 8x and 12x, respectively.