Media Chinese Intl (MCIL) - Hits by higher operating costs

Period      2Q13/1H13

Actual vs. Expectations     The 1H13 net profit of USD28.4m (or RM86.8m) came in below expectations and accounted for 45.1% and 45.9% of ours and the street’s FY13 full-year estimates. The relatively disappointed results were mainly attributed to the 1) sluggish revenue growth; 2) higher operating costs (labour and paper costs) and 3) currency impact. 

Dividends     Declared a 2.05 sen (or US 0.673 cent) interim dividend with the ex-date set on 13 December.  

Key Result Highlights      YoY, the 1H13 revenue was flat at -1% to RM748m while PBT was lower by -4% as a result of higher operating costs. The depreciation of RM and CAD against USD has resulted in a negative currency impact of USD5.4m to the group’s total turnover and USD1.1m at the PBT level. The net profit, however, was reduced by a lower -1% as a result of a lower effective tax rate (22.3% vs. 25.4%) due to the reversal of deferred income tax liabilities.  

QoQ, the revenue was relatively flat at RM371m (-1%) due to the sluggish performance in all segments. The group’s PBT, meanwhile, was lower by 21% due to the increased operating costs, in particular, staff and paper costs. 

Outlook     While management continues to remain cautious on the adex outlook as a result of the continuing slowdown in the global economy, newsprint price is  expected  to  remain  steady  in  the  coming quarters thus providing some cushions to its earnings.  

The group also continues its plan to focus on enhancing its growth momentum in 2HFY13 while containing its operating costs.   

Change to Forecasts     We have reduced our MEDIAC net profits forecast for FY13 (-7.7%), FY14 (-4.5%) and FY15 (-0.6%), after increased higher operating costs assumptions.      

Rating  Maintain OUTPERFORM

Valuation       We have lowered MEDIAC’s TP to RM1.23 (from RM1.36 previously) based on a targeted +0.5 standard deviation (from +1.0 SD previously), implying a FY13 PER of 11.8x. The lower SD-level is to reflect potential weaker investment sentiment after this set of disappointing results.

Risks     The CY13 gross adex growth coming in below our expectation of RM12.4b (+8% YoY).

Source: Kenanga