Media Chinese - Print media remains relevant BUY

- We re-affirm our BUY recommendation on Media Chinese International (MCIL), with an unchanged fair value of RM1.37/share based on a 10% discount to our DCF value of RM1.52/share.

- Looking ahead, management is cautiously optimistic  about the outlook for FY13F. Given the uncertainty in the global economic environment, coupled with the impending general election and major sporting events, management foresees local business and consumer spending to be prudent. As such, management expects a low singledigit adex growth. We have assumed a 2% increase in adex growth in our earnings assumption.

- Management strongly believes that print media remains relevant, despite the emergence of new media (0.7% of market share) in recent times underpinned by :-  (1) Print remaining as the most effective and cheapest medium; (2) Penetration of print media is still very high (55% of market share) that advertisers just cannot ignore – hence, able to gain greater traction and reach to consumer compared to new media; and (3) Advertisers in Malaysia are not entirely convinced yet by the digital media, and some are not willing to pay for  online advertising.

- Advertising momentum in Hong Kong remains positive, driven by promotional activities from the property and luxury goods segment. Despite increased competition from the emergence of two free newspapers, management is confident that Ming Pao will not be affected and will able to raise ad rates moving forward, given its strong credibility and brand name.

- In line with declining commodity prices, management expects newsprint price to soften in FY13F. However, the strengthening of USD would negate that and possibly, lead to higher newsprint prices. As such, we have assumed an average newsprint price of US$700/MT (same price as its current inventory holding).

- To recap, MCIL declared a special dividend in FY12. Despite this, management has expressed the unlikelihood of paying another special dividend in FY13F, with preference to remain prudent and conserve cash. Our dividend forecast remains unchanged with a payout of 60%, translating into a yield of 6% for FY13F.

- At the current price level, valuation appears attractive. The stock is trading at a PE of 10x in FY13F (vs. Star’s 12x). Balance sheet is clean and cash pile stood at RM134mil as at end-FY12.

- Our BUY recommendation is premised on:- (1) its domination of the Chinese-language newspaper segment in Malaysia with four titles under its umbrella, controlling 89% market share; (2) Superior pricing power in ad rates – the second highest industry wide; and (3) Strong credibility and brand name of Ming Pao in Hong Kong.

Source: AmeSecurities