Media Chinese Intl (MCIL) - A challenging adex outlook in HK

Period  3Q13/9MFY13

Actual vs. Expectations  The 9M13 net profit of USD43.3m (or RM132.3m) came in within expectations and accounted for 74.5% and 71.1% of ours and the street’s FY13 full-year estimates.

Dividends  No dividend was declared as expected given that the group typically rewards its shareholders semi-annually. For the full financial year, we expect MEDIAC to distribute US1.82 cents (or RM0.055 sen) in DPS (1H13: US0.67 US cents or RM0.0205), translating into a dividend payout ratio of 55% for FY13.

Key Result Highlights  YoY, the 9MFY13 revenue was flat at RM1.1b while the PBT was lower by 10% as a result of higher operating costs, led by the labour and finance charges. The depreciation of RM and CAD against USD has also resulted in a negative currency impact of USD3.0m to the group’s total turnover and USD0.5m at the PBT level. All in, the net profit has fallen by 9% to RM132m although the impact was cushioned by a slight reduction in the effective tax rate (24.6% vs. 25.4%).

 QoQ, the revenue was relatively flat at RM376m (+1%) due to the sluggish performance in all the segments. The group’s PBT, meanwhile, improved by 33% to RM66.9m due to the higher margins recorded in the Malaysian (26% vs. 20%) and Hong Kong (19% vs. 8%) publishing and printing segments as a result of the festival season.

Outlook  While management remains cautiously optimistic on the Malaysia’s adex outlook, it has taken a cautious stand on its Hong Kong’s publishing and printing division. This was due to the recent hike in property stamp duty, which had dampened the HK’s property players’ appetite for adex spending. On top of that, there is also an increasing trend for Finance Institution players i.e. banks to advertise in free papers rather than the traditional papers according to management. As of 9MFY13, MEDIAC’s HK division contributed 18% and 14% to the group’s turnover and PBT respectively.

Change to Forecasts  We have reduced our MEDIAC’s NP forecasts for FY13 (-3.3%), FY14 (-3.2%) and FY15 (-3.24%) after imputing in a lower contribution from its HK division and 2) a higher interest cost.

Rating   Maintain OUTPERFORM

Valuation  Our MEDIAC TP remains unchanged at RM1.23, which is based on a targeted +0.5x standard deviation above the mean, implying a FY14 PER of 12.0x. Note that we have rolled over our valuation base year to FY14 from FY13 previously.

Risks  The CY13 gross adex growth coming in below our expectation of RM12.3b (+8% YoY).

Source: Kenanga