THE BUZZ
Media Chinese yesterday proposed to distribute RM700m via a special dividend to its shareholders, or about RM0.41 per share. Of the entire proposed sum, RM200m will be funded internally while the remaining RM500m will financed by bank borrowings.
OUR TAKE
A windfall indeed. We were caught by surprise by the huge reward the company has proposed for its shareholders. Although our expectation of a capital repayment turned out to be correct, we were wrong in our assumption that the company would unlikely borrow to fund the exercise. After the capital repayment, the group’s cash pile will shrink by RM200m to RM152m. The proposed 41 sen per share in special dividend as well as our 6.6 sen per share dividend estimate based on our 60% payout ratio forecast will put MCIL’s dividend yield for FY13 at a generous 35%.
Balance sheet adjustment. While the exercise date has yet to be finalized, based on the said proposal, the group’s share capital and par value will be maintained while its share premium will contract by 78% to RM192.8m after the ex-date. On the other hand, it will push up MCIL’s borrowings by RM500m, bringing its total borrowings to RM781.7m and net borrowings to RM397.6m.
The group can well afford the exercise. After incorporating the half-year effect of higher interest expenses of RM15m p.a - derived from our assumption of a 6% interest expense - our net profit forecast for FY13 will come down by 10% to RM188m while our EPS will be cut to 11.1 sen from 12.3 sen previously. (Note that the group’s FY14 interest expense will normalize at RM30m a year, based on an interest rate of 6% p.a) Assuming that the group maintains its 60% dividend payout this year, and after paying RM15m in interest expense as well as a projection of normal capex of RM20m, the group will still have cash of about RM75m. While investors might not favor the idea of borrowing to fund its capital repayment, we believe that the group is actually optimizing its balance sheet. Looking at its healthy balance sheet, we think it would optimize its capital mix without excessively burdening its cash flow and earnings capability. We also do not expect the group to embark on any major capex or expensive M&A activities within the next 3 to 4 years.
VALUATIONS & RECOMMENDATIONS
Share Price and FV adjustment. MCIL’s stock last traded RM1.35 when trading was halted. With capital repayment of RM0.41 per share, the ex-share price should adjust to RM0.94. Though management has not finalized on the ex-price and ex-date, assuming the ex-price of RM0.94 and at our new level of 11.1 sen EPS in FY13, the share is trading at 8.5x FY13 PER, which is very attractive. We believe the share price will continue to rally since the market has not priced in this piece of positive news. Our cum-FV is now adjusted to RM1.86 from RM1.60 previously based on an unchanged 13x FY13 PER and the special dividends of RM0.41, after adjusting the half year effect of higher interest expense and lower interest income. While the share will have a sharp spike once the market opens today, we think the share price will adjust and normalize back after the completion of the capital repayment programme which is likely to be happen in 3Q-4QFY13.
ROE strengthen, Maintain BUY. While we note that MCIL is no longer a strong cash cow now noting that they will have to serve its interest of RM30m p.a going forward, nonetheless, we still maintain our BUY call for now considering its capability to service the debt interest, paying out dividends based on a payout ratio of 60% assuming that the group is not taking any major capex in the next 3-4 years. The group’s ROE also strengthen by 29% to a ROE of 20% in FY13. We continue to like the group’s growing readership and circulation considering the country’s growing Chinese-literate population and the increasing importance of the language in the global arena. Furthermore, we expect its overseas operations especially its Ming Pao publication in Hong Kong to continue to grow healthily. Maintain BUY, with cum-FV adjusted to RM1.86 based on an unchanged 13x of FY13 PER.
Source: OSK
No comments:
Post a Comment