Let’s not get ahead of ourselves
? MCIL’s 9MFY3/22 core net profit made up only 24% of our full-year forecast. Apart from the high effective tax rate, its travel division hardly had business.
? FY3/22-23F EPS are cut by 71-81%. Until Hong Kong allows outbound travel again, we forecast no contributions from the travel segment.
? A meaningful revival of the travel division’s prospects serves as a catalyst. Reiterate Add; its net cash/share of 17.4 sen is higher than the share price.
9MFY3/22 earnings disappointment: we were overly optimistic
Media Chinese Int’l (MCIL) 9MFY3/22 core net profit w as RM4.9m, rebounding from a core net loss of RM14.1m in the same period last year. While this is a commendable achievement for the newspaper publisher, it falls far short of what we had expected. Its 9MFY3/22 core net profit came to only 24% of our full-year forecast (Bloomberg consensus estimated MCIL w ould sink into a net loss of RM4.6m in FY3/22F); it goes without saying that it is unlikely that MCIL’s 4QFY3/22F earnings would catch up with our forecast, what more with its 4Q being the weakest quarter historically. We had clearly been overly optimistic by including earnings contributions from its travel and travel services division after Hong Kong began talking about reinstating air travel at end-2021. Another factor that made us overshoot our FY3/22F net profit forecast w as the higher-than-effective tax rate of 57.8% in 9MFY3/22. According to MCIL, this came about because some of its loss-making subsidiaries had non-deductible expenses.
FY3/22-23F EPS cut by 71-81% sans travel segment contribution
With the latest Omicron w ave pushing up Covid-19 cases in Hong Kong, we think the likelihood of the special administrative region reinstating outbound travel is slim, at least until its vaccination rates reach an acceptably high level. As such, w e now expect no contributions from MCIL’s travel division until there is official confirmation that Hong Kong is opening its skies again. On expenses, w e foresee MCIL’s new sprint costs rising from FY3/23F onwards once it replenishes its inventory with higher-priced new sprint in the market today. We also anticipate its government-provided wage subsidy to dry up in FY3/23F as Covid-19-related relief measures have ceased, hence MCIL’s fixed costs may begin to notch up yoy in FY3/23F. With no sales from its travel division, higher operating expenses, and higher effective tax rate, our FY3/22-23F EPS are slashed by 71-81%. We now forecast MCIL to be in the red in FY3/24F.
Reiterate Add; travel reinstatement in Hong Kong a catalyst
The low er FY3/22-24F forecasts send our TP a shade low er to 21 sen, although we keep our valuation basis at 0.5x CY23F P/BV, which is 1 s.d. below the media sector’s 3-year mean. That said, should Hong Kong reinstate full-scale air travel, this would serve as MCIL’s earnings catalyst. We keep our Add call on grounds of its suppressed valuation and its net cash/share of 17.4 sen (as at end-Dec 2021) already surpassing its share price. Downside risk: print division unable to garner more ad sales and rein in costs.