Media Chinese Int’l - OUTPERFORM - 1 Jun 2012

We attended Media Chinese International (“MEDIAC”) post result briefing yesterday, which was hosted by the group’s CEO. Management continues to remain  cautiously optimistic on adex outlook and reiterated its view on higher newsprint price in 2H12 although it is likely to be cap at USD700/MT. The group’s focus is switching towards growing FY13 turnover instead of continuing cost cutting measures which has  led FY12 bottomline increase of 15% YoY.  Apart from its core print publishing business, the group has launched its education modules  in HK to cater for the recent reform in the country’s education system, which we reckon could be a potentially meaningful additional revenue stream. But for now, earnings impact is minimal and we maintain our FY12-13E earnings of RM188m-RM187m. MEDIAC maintains its current dividend policy of 30%-60% payout of PAT despite its FY12 dividend  payout  of  71%.  Maintain  OUTERPFORM  on  MEDIAC  with unchanged TP of RM1.36 on target 12.5x FY13E PER. 

FY13E focuses on turnover growth.  Management remains cautiously optimistic on 2HCY12 adex outlook, underpinned by scheduled major sport events and potential General Election. While FY12 enjoyed strong earnings growth via stringent cost control measures, MEDIAC will turn its attention towards turnover growth in FY13E. Newsprint costs wise, the group foresees increasing likelihood of prices trending higher in 2HCY12 but will likely be cap at USD700/MT.  Key challenges in FY13 are; 1) potential strengthening in USD and; 2) escalating labour cost.   

Targeting an additional revenue source from Hong Kong  (“HK”). MEDIAC has launched their education module which comprises of iRead, iClass and iWeb, to cater for the recent reform in HK’s education system. Management expects to secure contracts from 50 schools (out of total 400+ schools in HK) during the 1^st  year of its new product launch, given its rich contents in the publication industry. We understand the group is charging HKD100k/school during the first sign-up with an annual maintenance fee of approximately HKD50k/school. For now, earnings impact from this segment is minimal. 

Dividend policy remains unchanged. Despite the higher FY12 dividend payout ratio of 71%, management is maintaining its current dividend policy that set a payout ratio at 30%-60% of PAT. We expect the group to declare FY13E total dividend of 6.2 sen (5.3% yield) based on 55% payout. 

Unlikely to follow STAR’s footsteps  at this juncture. MEDIAC has no immediate plans to launch its ePaper version despite its industry peer, STAR PUBLICATIONS (“STAR”), aggressively marketing its ePaper bundled product. MEDIAC believes there is no urgency to shift its focus as its reader groups still prefer traditional printed versions and are typically not so IT or device savvy. On a the other hand, management remains doubtful on STAR’s iSnap function as responses form advertisers and readers appear to be muted at this juncture. Nonetheless, MEDIAC will continue to monitor advertisers/readers responses of iSnap function. To recap, iSnap is an enhanced advertisement feature that allows newspaper readers to receive additional related content to news articles (e.g. videos and photo galleries).   

Source: Kenanga