Media Chinese Int’l (MEDIAC)’s 1H17 results were below expectations due to lower-than-expected turnover and higher OPEX. Announced lower-than-expected interim dividend of 1.45 sen during the quarter. Post-results review, we lowered our FY17E/FY18E core PATAMI by 6%/13%. Maintained UNDERPERFORM with lower TP of RM0.59 (vs. RM0.60 previously). Nevertheless, the group’s high dividend yield of 6.1% is expected to provide some cushion against volatility.

Below expectation. 1H17 core PATAMI of RM42.1m (-38% YoY) came in below expectations; accounting for 45.2%/36.9% of our/street’s full-year estimates. On our end, the key negative variances were mainly due to: (i) lower-than-expected top-line performance, particularly the print and travel segments, and (ii) higher-than-expected OPEX. Note that the group’s 1H normally made up c.52%-62% of the full-year PATAMI, based on the past three years.

Declared a 1.45 sen (or US 0.360 cents) interim dividend with the ex- date set on 13 December. The dividend is c.31% lower than our earlier interim DPS estimate of 2.1 sen. On a full year basis, we have lowered our total DPS forecast to 3.9 sen (vs. 4.5 sen previously), translating into a decent dividend yield of 6.1% or a pay-out ratio of 75%. Note that, we understand that management is aiming to distribute a minimum 50% of its PATAMI as dividend or to provide for a 6% dividend yield.

YoY, 1H17 revenue dipped by 15% to RM696m due to lower contribution from the publishing and printing (-12%, due to soft adex revenue amid poor consumer sentiment) and travel (-21% due to string of terrorist attacks in Europe, which was one of the main tour destinations of the group’s travel business) segments. PBT, meanwhile, also declined, by 38%, in tandem with the weaker revenue. Stripping off the currency impact, 1H17 turnover would have weakened by 12.4% while its PBT would have narrowed 35%. QoQ, turnover improved by 3%, thanks to higher tour segment contribution. Its PBT, however, declined by 4.5% as the higher turnover from the travel segment was not enough to offset the lower profit contribution from the print segment.

Malaysian publishing and printing segment’s revenue dipped by 8.4% YoY to RM172m in 2Q17 with PBT slipping by 23.3% to RM29.8m. The group’s operations in Malaysia have been affected by the local decelerating economy and weak consumer sentiment, which continued to impact the advertising market negatively.

Outlook remains challenging in view of the ongoing economic uncertainties and currency volatility. While newsprint prices are expected to remain firm, it may have an adverse impact should MYR continue to depreciate against USD. The group’s travel business, meanwhile, is expected to continue facing difficult market conditions amid growing safety and security concerns as well as cut-throat competition. Having said that, we understand that the group will continue to strengthen efforts to diversify its revenue stream (i.e. e-commerce) as well as focus on improving operational efficiencies.

Reduced FY17E/FY18E PATAMI by 6.2%/13.1% after imputing: (i) lower Print and Tour segment turnover contribution, (ii) higher distribution and administrative costs to reflect the latest run-rate, and (iii) revised RM/USD currency estimation to RM4.19/RM4.30 from RM4.08/RM4.10 previously.

Correspondingly, we have lowered our MEDIAC target price to RM0.59 (vs. RM0.60 previously) after moving the valuation base year to FY18 with lower targeted PER of 10.8x, representing -1.0x SD below its 5-year mean.

Source: Kenanga Research - 01 Dec 2016