Friday, 1 March 2013

Media Chinese - Slower-than-expected adex weakens 9MFY12 HOLD

- We are downgrading Media Chinese International (MCIL) to a HOLD, with a lower fair value of RM1.18/share vs. RM1.29/share previously, based on our DCF valuation, following a weaker-than-expected FY13F adex.

- MCIL reported a weak 3QFY13F with a net profit of RM44mil, which brings 9MFY13 earnings to RM132mil. This was short of our expectations covering only 72% of our earlier estimate.

- The shortfall was due to higher operating expenses and weaker adex sentiment amid the rising general election uncertainty.

- As a consequence, PBT dropped by 10% YoY on the back of flat – 0.2% decline – in turnover.

- 3Q earnings strengthened 14% QoQ supported by a seasonally stronger quarter underpinned by the festive season, but weakened by 22% vs. a year earlier. 4Q revenues grew marginally and were affected by a cut back in advertising expenditure.

- This was primarily caused by the tightening of government policies on the local property market in Hong Kong and North America, both of which rely heavily on advertisers from the property segment. We understand that property launches have been put on hold.

- Further to that, higher financing costs were recorded in 4Q, attributed to RM500mil borrowings undertaken to finance the special dividend of 41 sen/share.

- Advertisers are generally cautious and conserving budget based on a ‘wait-and-see” approach in 1Q.

- As such, we have trimmed and fine-tuned our earnings to pencil in a slower-than-expected adex as well as election jitters. We now project FY13F earnings to slide by 10% and rise by 7%-13% over FY14F-FY15F.

- But, management sees the upcoming General Election to potentially recoup the shortfall.

- No dividend was declared. To-date, dividends declared amount to 43.1 sen/share. Excluding special divided and at 6.3 sen/share, the yield stands at 5.7%.

- On a side note, the proposed spin-off of the travel-related business on the Hong Kong Stock Exchange is still on-going and is targeted to be completed by end-FY13F. This is unlikely to have any significant impact given that it only accounts for circa 3% of EBIT.

- At the current level, the stock is trading at 11x of FY13F earnings.

Source: AmeSecurities

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