MEDIAC's 1HFY25 results was above our expectations, but the key surprise emanated from the dip in QoQ travel revenues as Hong Kong residents opt to vacation in mainland China cities rather than travelling abroad. YTD losses narrowed on better-than-expected cost savings and lower depreciation. As such, we tweak our FY25F and FY26F losses to RM12.5m and RM6.4m, respectively, (from RM24.7m and RM22.3m), but maintain our TP of RM0.11 and UNDERPERFORM call.

Exceeded expectations due to cost beat. 1HFY25 results surpassed expectations, with a core net loss of RM6.7m against our full-year net loss forecast of RM24.7m. The variance versus our forecast was mainly due to lower-than-expected depreciation and opex.

YTD boost from new travel destinations and luxury cruises.1HFY25 topline expanded by 6% YoY as sustained traction at the travel segment more than compensated for decreased contributions from: (i) adex (-6% YoY), and (ii) the publishing & printing segment (newspapers, magazines, books & digital contents).

The travel segment's growth was propelled by the continued popularity and expansion of its premium CEO-led luxury tour series to new destinations, (e.g. Vietnam) and luxury cruise trips to Europe.

Weaker MYR and CAD were a boon too. 1HFY25 EBITDA turned around from losses, driven by cost savings initiatives and efficiency gains across MEDIAC's global operations. The stronger EBITDA flowed through to bottom line, reducing 1HFY24 core net loss by more than threefold.

Additionally, bottom line benefitted from: (i) depreciation of MEDIAC's operational currencies (MYR and CAD) versus USD (reporting currency), (ii) lower newsprint costs, and (iii) reduced depreciation following substantial impairments on fixed and intangible assets in 4QFY24.

Star travel segment seems to be slowing down. On a less upbeat note, QoQ revenue (in USD terms) at the travel segment dipped by 16% as many Hong Kong residents flocked to spend their weekends and holidays in neighbouring mainland China cities instead of travelling abroad. Looking ahead, we are concerned of a slowdown in this segment, which is currently MEDIAC's key earnings anchor and driver.

Unabating challenges in publishing space. According to Nielsen data, MEDIAC's market share of total advertising expenditure (adex), excluding pay TV, has declined from a peak of 10.7% in 1QCY16 to 2.4% in 3QCY24. Additionally, total industry adex (excluding pay TV) experienced a compound annual contraction rate of 0.8% from 2016 to 2023. This decline can be attributed to traditional media, internet websites, and streaming platforms losing market share to key opinion leaders (KOLs) and social media platforms. Essentially, MEDIAC is losing market share within a contracting industry, which alludes to sustained earnings headwinds.

Forecasts. We narrowed our FY25F and FY26F losses to RM12.5m and RM6.4m, respectively (from RM24.7m and RM22.3m), to reflect lower overheads and depreciation charges.

Valuations. We maintain our TP of RM0.11 based on unchanged 0.3x FY25F P/NTA. There is no adjustment to our TP based on ESG given a 3- star rating as appraised by us (see page 5).

Investment case. We remain wary on MEDIAC due to: (i) sustained adex market share erosion, (ii) potential slowdown in travel segment as Hong Kong residents limit their travelling to cities in mainland China, and (iii) fierce competition from digital media, social media platforms and KOLs given their competitive advantages (e.g. application of AI, low barriers of entry, lean cost base).

Key risks to our call include: (i) recovery in adex for traditional Chinese newspapers, (ii) sustained traction in cost cutting initiatives drive fixed costs lower, and (iii) successful inroads into new digital media or synergistic businesses to diversify from legacy earnings and that will result in immediate earnings accretion.

Source: Kenanga Research - 28 Nov 2024