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This article first appeared in The Edge Financial Daily on April 15, 2019

Media Chinese International Ltd
(April 12, 22 sen)
Downgrade to hold with a lower target price (TP) of 23 sen (previously 30 sen):
The weakness in hard copy circulation and advertising expenditure (adex) has so far shown no signs of abating and continued to hit all print media players. Media Chinese International Ltd (MCIL) has not been spared and is constantly beefing up its digital initiatives to diversify its revenue streams. In addition, we expect a more challenging outlook for its travel business due to the popularity of digital booking platforms. Our earnings projections for earnings for financial year 2019 (FY19)-FY21 have been revised downwards by 5%-35% to take into account the challenging operating environment for both the publishing and travel divisions. We downgrade MCIL to a “hold” with a lower TP of 23 sen.

 

The weakness in total industry adex (excluding pay TV and digital) shrank by a further 12.9% year-on-year (y-o-y) in the first two months of 2019 (2M19) to RM739.2 million partly driven by cautious ad spending as well as the shift towards digital alternatives. More specifically, newspaper adex took a relatively hard beating, contracting 22.2% y-o-y for 2M19 to RM286.2 million. We continue to expect adex to be muted for 2019 given the downbeat sentiment coupled with a lack of adex-boosting events.

Newsprint costs have stabilised lately, coming down from a peak of about US$700 (RM2,877) a tonne to about US$650 a tonne. This comes on the back of stabilising supply partly due to the economic slowdown in China which has seen a slower pace of newsprint demand.

The travel division has also been affected by digital technology as more travellers prefer web- and app-based bookings. More airlines are also engaging travellers directly and are in stiff pricing competition with the group’s tour operators. We believe the segment will only get more challenging moving forward, given the increasing popularity of digital alternatives.

We remain fairly cautious at this juncture, given the sustained challenging environment and a lack of significant growth catalysts. — Affin Hwang Capital, April 12

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