Media Chinese’s (MCIL) 1QFY13 core earnings of RM42m were largely in line with our and consensus, representing 22% of both forecasts. We are maintaining our BUY call, with a cum-FV of RM1.86, based on a 13x FY13 PER. This takes into account the proposed dividend per share of RM0.41. As adex in the Chinese segment is on a healthy growth trend amid stable newsprint prices, currently at USD620mt, and management’s prudent cost measures, we expect it to record robust results going forward. Maintain BUY.
Largely in line. MCIL’s 1QFY13 revenue, PBT and core earnings of RM383m, RM65m and RM42m grew by 8%, 12% and 3% y-o-y respectively. The numbers were largely in line with both our and consensus forecasts, representing 23% of both full-year numbers. Profits from the group’s core publishing and printing business rose by 10% y-o-y, attributed mainly to the sturdy growth in advertising revenue from its Malaysia operations, which saw revenue grow 5% y-o-y, while its Hong Kong operation registered 10% and 104% y-o-y growth in revenue and profits respectively.
Overseas ops make good progress. We gather that there was a strong pick-up in advertising spending in Hong Kong, mainly from luxury brands, as well as recruitment. However, the group’s North America operation, its smallest revenue contributor (6% of MCIL’s total revenue in FY12), recorded a 7% y-o-y decline in revenue owing to the weak economy as well as tepid property market in the region. MCIL’s travel segment continued to perform well, recording sturdy 35% and 193% jumps y-o-y in revenue and profit respectively, thanks to the resilient demand for long-haul tours to Europe, buoyed by the weakening Euro and the 2012 Olympics as well as summer holidays, which boosted the demand for tours.
On a q-o-q basis, revenue and PBT grew 21% and 8% respectively but core earnings were down by 11%, no thanks to a higher tax rate, which climbed by 31%. On another note, MCIL’s EBIT margin were squeezed by 2ppts q-o-q due to the stronger USD. Note that MCIL reported its numbers based on an exchange rate of RM3.18/USD as at 30 June 2012. However, we are applying an exchange rate of RM3.11, which is the average exchange rate for the 1Apr – 30 June 2012 quarter.
2 exceptional items. There were 2 exceptional items, one being the gain in disposal of an overseas property amounting to RM241k and another being the gain from the disposal of convertible notes worth RM5.4m.
Two proposals pending. MCIL has over the past eight weeks announced two corporate exercises –the first being a RM0.41 per share, or RM700m, in capital repayment, to be financed by RM200m cash and RM500m in borrowings. In our 17 July 2012 report, ‘’Bonanza for Shareholders’’, we had estimated the group’s cash flow to be about RM240m p.a and assumed an interest rate of 6% p.a as well as our expectation of the group maintaining its 60% dividend payout. On this basis, we believe the group will be able to pay back its borrowings in the next three to four years. We also do not expect the group to utilize any major capex or embark on expensive M&A activities during this period. We also note that the proposed capital repayment has yet to be finalized, including its ex-date. Nonetheless, we believe the proposal will be completed by 4QFY13. The group’s second corporate proposal involves the spinning off of its travel business and to float it separately on the Growth Enterprise Market (GEM) in the Hong Kong stock exchange by 3QFY12. MCIL will hold 75% in the target listing entity. We view this proposal as positive and believe that it is a right time for the group to unlock this segment’s value, having turned around the business successfully.
Outlook still robust. Maintain BUY. We are maintaining our BUY call on MCIL for now in light of management’s prudent cost measures as well as the anticipated healthy adex growth for 1HCY12, spurred by the highly anticipated and upcoming general election (GE13), healthy domestic spending, stable newsprint costs and management’s prudent cost cojhntrols. Maintain BUY, with a cum-FV of RM1.86, based on a 13x FY13 PER, which also takes into account the proposed dividend per share of RM0.41.
Source: OSK
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