Media Chinese Intl - OUTPERFORM - 27 June 2012

Media Chinese International (“MEDIAC”) remains our Media Sector TOP PICK with an OUTPERFORM rating and Target Price of RM1.33 (targeted FY13E Fwd PER of 12.2x). We continue to favour MEDIAC over other media companies due mainly to 1)  leading position in Malaysia Chinese media segment; and 2) natural hedge in forex exchange given its USD exposure in both revenue and cost segments. Management continues to remain cautiously optimistic on adex outlook and reiterated its view on higher newsprint price in 2H12 with USD700/MT as a likely cap. The group is shifting its focus to grow its FY13E turnover, instead of continuing cost cutting measures which had led FY12’s bottom line growth of 15% YoY.  Apart from its core print publishing business, the group has launched its education modules in Hong Kong to cater for the recent reform in the country’s education system. We reckon the education modules maybe an additional revenue source in the future. Current dividend policy remains at 30%-60%  of PAT despite the group recording FY12 dividend payout ratio of 71%. 

FY13E focuses on turnover growth.  Management remains cautiously optimistic on 2HCY12 adex outlook, underpinned by scheduled major sport events and a 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  FY13E include; 1) potential strengthening in USD; 2) escalating labour cost.    

Print media remains relevant,  despite the emergence of new media (0.6% market share). At this juncture, management believes advertisers in Malaysia still prefer print media given its lion market share (~41%) and it being the most effective medium to reach a wider consumer base. Nevertheless, management will continuously invest in the digital media by monitoring consumer behaviour as well as keeping a  close tab on advertising trends to better anticipate new trends. 

Targeting an additional revenue source from Hong Kong (“HK”). MEDIAC has recently launched their education modules which comprise 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 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 HKD50k/school. For now, earnings impact from this segment is minimal, although it could potentially meaningful contributor in the future. 

Dividend policy remains unchanged. Despite the higher FY12 dividend payout ratio of 71%, management maintains its current dividend payout policy of 30%-60% of PAT.  We expect the group to declare total gross dividend of 6.4 sen (5.5% yield) in FY13, based on 55% payout ratio.  

Source: Kenanga