This article first appeared in The Edge Financial Daily on May 31, 2017
Media Chinese International Ltd
(May 30, 57.5 sen)
Maintain reduce with a lower target price (TP) of 53 sen: Media Chinese International Ltd’s (MCIL) revenue in the fourth quarter ended March 31, 2017 (4QFY17) fell marginally by 0.2% year-on-year (y-o-y) as favourable foreign exchange movements offset the 3.5% y-o-y drop in contribution from print advertising expenditure (adex). Stripping off the currency impact from foreign operations, its 4QFY17 revenue dropped 12% y-o-y. However, MCIL posted a higher core net profit of RM19.6 million in 4QFY17 versus RM18.4 million in 4QFY16, after adjusting for RM15.9 million in goodwill impairment. It declared a second interim dividend per share (DPS) of 1.6 sen for the quarter, bringing DPS for the financial year ended March 31, 2017 (FY17) to 3.1 sen, below our expectation of 3.3 sen.
MCIL’s FY17 revenue declined 1.7% y-o-y due to lower contribution from both its print advertising and travel segments, which dropped 5% and 1% respectively. Malaysian printing and publishing sales, which accounted for 54% of the group’s FY17 revenue, fell 1.4% y-o-y due to lower adex on the back of weakening consumer sentiment amid uncertainty in the domestic economy. Overall, MCIL’s core net profit fell 26% y-o-y to RM83 million in FY17.
We expect the adex outlook to remain subdued in 2017, given the domestic economic uncertainties amid currency volatility and weak domestic consumer sentiment. Moreover, we see the structural shift in consumption towards digital platforms taking away adex share from print. Overall, we expect the group’s print adex to fall 5% in FY18.
The travel segment posted a decent revenue growth of 20% in 4QFY17 due to its success in promoting new tour destinations, such as South Africa and America, which offset the decline in tour sales to Europe. However, we expect muted growth for the travel segment in FY18 due to weaker consumer sentiment in Hong Kong and reduced demand for European tours amid security concerns following the recent terrorist attacks in Europe.
MCIL will continue to invest in digital platforms to grow its online presence and capture the shift in its readership base. Management highlighted that the group’s online business posted double-digit revenue growth in FY17, driven by its growing presence on online platforms through e-paper, mobile apps and a video portal. However, the segment’s contribution remained small at less than 10% of total group revenue in FY17.
We tweak our FY18 to FY19 forecast earnings per share by 1% to 5% to account for lower print adex. Following the earnings revision, we lower our TP to 53 sen, still based on nine times 2018 forecast price-earnings ratio (PER) (40% discount to our target market PER). We maintain our “reduce” rating on the stock. — CIMB Research, May 29