Not all is gloom and doom
? MCIL’s FY3/22 core net profit made up only 28% of our full-year forecast as
losses in certain subsidiaries pushed up its effective tax rate.
? While we now forecast MCIL to post net losses in FY3/23-24F, the fluid
situation of Hong Kong’s economic reopening could provide earnings upside.
? Ad sales could bounce back while MCIL’s travel division could resume
business if Hong Kong returns to normalcy.
A higher-than-effective tax rate battered our FY3/22 expectation
Media Chinese Int’l (MCIL) w as hit by an effective tax rate that w as higher than its
FY3/22 pre-tax profit of RM8.4m. After removing the losses in its minority interests, the
multinational Chinese-language publisher’s FY3/22 core net profit came to only RM1.7m.
The group said its effective tax rate soared to 108% because certain subsidiaries sank
into losses. The unexpectedly high tax rate whittled down its FY3/22 core net profit to
only 28% of our full-year forecast and 21% of Bloomberg consensus’s.
FY3/23-24F now forecast to make net losses
We believe these loss-making subsidiaries are some of the newspaper brands in the
Malaysia and Southeast Asia offices of MCIL’s print and publishing (P&P) division. In
4QFY3/22, the segment’s revenue crept up by 1.3% yoy but its pre-tax profit sank by
66% yoy. What this means is some of MCIL’s titles may not have benefited from the
advertising sale revenge spending seen after the economy gradually re-opened in Nov 2021. With this in mind, w e have revised our forecasts for MCIL and now project net
losses in FY3/23-24F. Another w et blanket on MCIL’s earnings rebound hopes comes
from prevailing inflationary pressure. With the possibility of advertisers tightening their
belts, competition may heat up between text-based and audio-visual media players and
our money is on the latter to emerge the w inner.
Reiterate Add with lower 20 sen TP; Hong Kong could be a catalyst
How ever, MCIL’s Hong Kong operations could shine a ray of hope. According to a 4 May
report by Bloomberg, the special administrative region is becoming more assertive about
reopening its borders and economy in defiance of China’s rigid zero-Covid-19 policy. If
Hong Kong can return to normalcy, MCIL could finally resume operations of its travel
agency business, which had become a major earnings driver prior to the pandemic. We,
how ever, are not factoring this into our prevailing forecasts because of the fluid nature of
the developments in Hong Kong. We recommend an Add on the stock due to its
underlying value. Its net cash/share of 17.9 sen constitutes nearly all of MCIL’s market
price of 18 sen as at 26 May’s closing. The FY3/23-24F’s earnings revision reduces its
BV and thus our TP inches down slightly to 20 sen. Our target valuation is kept at 0.5x
CY23F P/BV, or 1 s.d. below the media sector’s 3-year mean. Downside risk: print
division unable to garner more ad sales and rein in costs.