Media Chinese International (“MEDIAC”) has proposed to spin
off a 25% equity stake in its travel and travel-related business and is seeking
for a separate listing for the business on
GEM (“Growth Enterprise Market”) in Hong Kong. The proposed spin-off is expected to generate
some exceptional gains, which we believe
could be used by the company to further reward shareholders in the future while
the quantum is uncertain at this juncture. Management is targeting to complete
the whole exercise by the end of CY12. The proposed partial asset disposal will
have a minimal financial impact to the group due mainly to the division’s slim
margin and profit. We reiterate our OUTPERFORM rating on MEDIAC with an
unchanged target price of RM1.80.
Proposes to spin off
25% equity interest in the travel and travel- related business with a separate
listing on GEM in Hong Kong. The details in respect of the proposed
spin-off, including the size, structure of the share offering, etc. has yet to
be finalised. Nevertheless, management expects the proposed spin-off to be completed
by the end of CY12.
Key rationale for the
proposal. MEDIAC believes the
proposed spin-off and separate listing will be beneficial for the group by 1)
unlocking the value of its investments in the travel group; 2) to gain
recognition and corporate stature and 3) enhance its corporate governance,
operational and financial transparency.
Conditions of the
proposed spin-off. The proposed
spin-off is conditional upon approvals being obtained from the following i.e. 1) the HKEx for the proposed
spin-off; 2) shareholders' approval and 3) any other relevant
authorities/parties if required.
Information on
Charming Holiday and Delta Group. MEDIAC’s travel division, via Charming
Holidays and Delta Group, provides tour packages and ticketing services in HK
and North America. Apart from popular longhaul trips, Charming also offers a
broad range of services, including study tours and business group tours. The
division’s turnover recorded USD70.3m (+8% YoY) (or accounted for 14.9% of the
group’s total turnover of USD472.2m) in FY12, mainly driven by robust
demand for its long-haul tours. Its net
profit surged by 30% YoY to USD2.0m as a result of adopting a more stringent
cost structure. The division’s net profit margin also managed to improve to
2.9% as compared to 2.4% a year ago.
FY13-FY15 earnings
forecasts remain largely unchanged. Post-asset disposal, we are maintained
our MEDIAC’s FY13 net profit forecast at RM193m but have lowered our FY14 and
FY15 forecast earnings by -1.0% and -1.4% to RM194m and RM180m respectively due
mainly to its slimmer net margin.
Our target price
remained unchanged at RM1.80 based on an unchanged targeted FY13 PER of
15.7x (+2SD). The group’s strong total FY13 dividend per share of 46.1 sen, which
translate into a 30% dividend yield, could provide a strong shelter from any
uncertainties. Downside risks in the stock are 1) any unfavourable operational environments
and adex outlook and 2) an unexpected
lower dividend payout ratio.
Source: Kenanga
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