WHILE tourism-related big boy Genting Bhd has rebounded strongly this morning (up 45 sen or 15.38% to RM3.45 as at time of writing) on the back of Pfizer’s and BioNTech’s COVID-19 vaccine trial which has exceeded expectations, how will this latest breakthrough affect the smaller travel industry players?
Zooming in on Media Chinese International Ltd (MCIL), CGS-CIMB Research noted that the company, too, can be a beneficiary by virtue of its travel agency business that provides ‘bespoke tour packages’ under the brand Charming Holidays.
“Things may not look so glum for MCIL after all if its travel agency division can re-open faster than our expectation in FY1/2023F,” wrote analysts Kamarul Anwar and Mohd Shanaz Noor Azam in a company update.
The travel agency targets Hong Kong tourists, in addition to Chinese diaspora living in Vancouver, Canada, and major cities in the US. According to MCIL, tours to Europe and North America are the recurring favourites among its clientele.
“Our current forecasts are based on expectations that travel demand will only pick up in its FY3/2023F,” projected Kamarul and Mohd Shanaz.
“The travel division’s share of pre-tax profit contribution had steadily ascended from 6.6% to 33.8% between FY3/16 and FY3/20.”
According to both analysts, MCIL’s grim-sounding profit warning on Nov 6 that its 1H FY3/2021 loss attributable to company owners would range from US$4.7 mil (RM19.3 mil) to US$5.2 mil (RM21.4 mil) obscured the implied 2Q FY3/2021 profit.
“In 1Q FY3/2021, the group’s reported net profit stood at RM24.3 mil,” reckoned Kamarul and Mohd Shanaz.
“While the travel division should have raked in minimal losses due to the lack of travelling, the potential profitability must be coming from its media business, in our view.”
The latter made a pre-tax loss of RM23.3 mil in 1Q FY3/2021 amid the absence of advertising sales during the early phases of the movement control order (MCO).
“Our FY3/2021F net loss forecast stands at RM34.2 mil. If the group continues to be profitable from 2Q FY3/2021, there should be more upside to our estimates,” suggested Kamarul and Mohd Shanaz.
On this note, both analysts encouraged investors to take the good news of a COVID-19 vaccine breakthrough as an opportunity to capitalise on MCIL’s depressed share price.
“We see the stock as an underrated value play, with its net cash/share of 13.4 sen making up 92.4% of its share price. Its investment properties’ net book value came to RM94.3 mil as of March 2020,” they added.
All-in, CHS-CIMB Research maintained its “add” rating on MCIL with a target price of 19.5 sen.
At 10.15am, MCIL was unchanged at 14.5 sen with 60,000 shares traded, thus valuing the company at RM245 mil. – Nov 10, 2020
