Media Chinese Int’l - OUTPERFORM - 30 May 2012

Media Chinese International (“MEDIAC”), a subsidiary of Media Chinese International (“MCIL”), is scheduled to release its FY12 full year result on 30 May. We expect the group to  report a full year net profit of USD58m (or RM177m based on an exchange rate of RM3.05 to USD1.00). This will be slightly below the consensus expectation of USD61m (or RM193m). The results will be underpinned by moderate growth in its advertising revenue and tour division. Despite the recent weakness in crude oil prices, management does not expect newsprint prices to follow suit. In fact, the group is expecting the current newsprint price, which has been hovering at between USD620/MT and USD650/MT since January 2012, to trend higher in 2HCY12 as a result of higher demand from North America. The latest enhanced advertising feature launched by STAR PUBLICATIONS (“STAR”) i.e. iSnap could attract more industry eyeballs. We understand that  MEDIAC is currently reviewing the competition from iSnap but  has yet to make any decision thus far. We are maintaining our OUTPERFORM call and FY12-FY14 earnings forecasts at this juncture while awaiting the upcoming result release. Our current MEDIAC target price is RM1.30, based on a targeted forward PER of 12.5x (+1SD above its mean).  

We expect MEDIAC to record USD58m (+5.8% YoY) in net profit in FY12,  which would be at RM177m (+6.6% YoY) based on an exchange rate of RM3.05 to USD1.00. The moderate net profit growth is expected to be underpinned by its advertising revenue and tour division. We also expect the group to declare a final dividend of US0.07 cents (or RM0.025) in 4Q12, bringing its FY12 total dividend to US0.19 cents (or RM0.059), translating into a dividend payout ratio of 55.9%. 

Expecting newsprint cost to trend higher in 2H but  at a manageable level.  Despite the recent weakness in crude oil prices, newsprint price is still trading at around USD630-650/MT, which is in line with management’s expectations. MEDIAC is currently holding a 6-month newsprint inventory with an average cost of below USD700/MT. Management expects newsprint prices to remain hovering at the current level in the 1H but is of the view that the price may resume its upward trend in the 2H due to potential higher demand from North America. We have factored in an average USD700/MT newsprint price in our FY13 financial model.   

STAR’s iSnap could attract industry eyeballs. We understand that MEDIAC is currently reviewing STAR’s enhanced advertising feature, iSnap. Despite no decision has been made thus far, we believe the group may potentially follow suit given that the feature could turn to become a new source of advertisement revenue should it receive a good response from advertisers. iSnap is an enhanced advertisement feature that allows newspaper readers to receive additional related content to the news articles, such as videos and photo galleries. 

Source: Kenanga