Media Chinese Intn’l - A good kick-start to the year Buy

- We re-affirm our BUY recommendation on Media Chinese (MCIL), with an unchanged fair value of RM1.70/share, based on a 10% discount to our DCF value – following the release of the 1QFY13 results. Its share price has rallied by 31% since July, purely reflecting the proposed special dividend of RM0.41/share.

- MCIL reported a core net profit of RM49mil for 1QFY13, which is within our expectations, accounting for 27% of our  FY13F earnings. The proposed special dividend is expected to be completed by 4Q this year.

- Earnings expanded by 19% YoY and 3% QoQ on the back of a revenue growth of 10% YoY and 23% QoQ. This was led mainly by:- (1) Strong performance of the tour business; and (2) Advertising revenue from the publishing and print business. 

- The boost from the tour business came from the weakening Euro which led to higher demand for long-haul tours to Europe coupled with summer-time in June being the peak season for  travelling. YoY, advertising grew by 4.4% in PBT, driven mainly by operations in Hong Kong stemming from the luxury brands and recruitment advertisements. 

- In the immediate term, we expect adex in the 2Q and 3Q to ramp up, driven by nationwide sales and the mooncake festival in Malaysia. No change to our earnings forecasts. We project a net profit of RM184mil for FY13F, growing by 9% to RM201mil in FY14F and another 4% to RM209mil in the following year. 

- We are in favour of its proposed spin-off of the travel business by having a separate listing in Hong Kong, resulting in a 75% equity stake for MCIL being the controlling shareholder. We reckon this is beneficial to MCIL, allowing a particular focus on its core business in print, given the travel business’ contribution of only 3% to the bottom line; hence, an insignificant impact on share price, in our view. 

- Despite the recent run-up in the share price, this does not imply a re-rating on the stock. Ex-capital repayment, the stock trades at 14x PE for FY13F with a dividend yield of 31% – which is broadly in line with its peers’ valuations. Both Media Prima and Star are trading at 13x PE. Stripping off the special dividend, the yield stands at 4.4% with DPS projected at 6.8 sen, assuming a 62% payout. This is consistent with the payout policy of between 30%-60%. We note that MCIL’s dividends have been on an upward trend over the past three years.

- MCIL’s strong equity name, its dominance in the Chinese-language newspaper segment with a market share of 89% in Malaysia and a more effective capital management underpin our BUY conviction.

- Key risks to our forecasts are:- 1) Lower-than-expected adex; (2) Higher-than-expected newsprint cost given its tendency to rise particularly during election seasons; and (3) Depreciation of RM against US$.

Source: AmeSecurities