Stock Name: MEDIAC
Company Name: MEDIA CHINESE INTERNATIONAL LT
Research House: AFFIN
Media Chinese International Ltd (MCIL)
(March 16, 67 sen)
Maintain buy at 65.5 sen, target price at 98 sen: MCIL has finally proved sceptics wrong as the stock price performance of this laggard has surged 22% over the past month. The key driver to its share price climb, in our view, is attributed to its strong 3Q financial year ending March 2010. This also reaffirmed its strong positive earnings momentum trend, which we have highlighted since 1QFY10.
To recap, 9MFY10 net profit of RM104 million which was up 41% year-on-year (y-o-y) has been underpinned by a combination of lower newsprint prices, firmer adex and cost control. The operational improvement is best highlighted by the improving margin trend. MCIL's publishing pre-tax profit margins have gradually risen from 9.7% in 1Q10 to 25.3% in 3Q10.
Two key areas that the management continues to believe that it can extract values are limiting newspaper returns. Considering that group circulation approaches one million copies daily, return rates range as high as 10% per publication leads to considerable newsprint wastage. Based on MCIL's annual newsprint consumption of 150,000 tonnes, a 1% reduction in newspaper returns alone could save the group RM2.8 million per annum (based on newsprint price of US$550/tonne and an exchange rate of RM3.35 per US dollar).
The second key area is improving adex yields. We understand that discounts offered to advertisers are still as high as 30%. With MCIL's dominance in the local Chinese print segment (about 89% of daily circulation in Peninsular Malaysia), we believe that the discounting practice can be further narrowed going forward.
We are upgrading our FY10 dividend per share (DPS) assumption to four sen from 2.5 sen based on a revised payout ratio of 54% from 34% previously.
Although the company does not have a written dividend policy in place, its historical theoretical payout ratios have ranged between 30% and 60% (58% payout in FY09), providing some comfort to our revised DPS forecast.
Despite a steep 20% run-up in share price, MCIL still trades at a highly appealing CY10 price earnings (PE) of eight times versus' Star Publication's 14 times FY2010 earnings per share (EPS). Its attractive valuations coupled with strong earnings recovery prospects as well as appealing dividend yields clearly support further capital appreciation.
Our investment thesis for MCIL and target price of 98 sen (based on 12 times CY10 EPS) remains unchanged. We like this under-researched stock for its cheap valuations and believe that investors are continuing to ignore MCIL's dominant position in the Chinese newsprint segment and its overseas footprint, which will be its longer-term growth driver. - Affin Research, March 16
This article appeared in The Edge Financial Daily, March 17, 2010.
Company Name: MEDIA CHINESE INTERNATIONAL LT
Research House: AFFIN
Media Chinese International Ltd (MCIL)
(March 16, 67 sen)
Maintain buy at 65.5 sen, target price at 98 sen: MCIL has finally proved sceptics wrong as the stock price performance of this laggard has surged 22% over the past month. The key driver to its share price climb, in our view, is attributed to its strong 3Q financial year ending March 2010. This also reaffirmed its strong positive earnings momentum trend, which we have highlighted since 1QFY10.
To recap, 9MFY10 net profit of RM104 million which was up 41% year-on-year (y-o-y) has been underpinned by a combination of lower newsprint prices, firmer adex and cost control. The operational improvement is best highlighted by the improving margin trend. MCIL's publishing pre-tax profit margins have gradually risen from 9.7% in 1Q10 to 25.3% in 3Q10.
Two key areas that the management continues to believe that it can extract values are limiting newspaper returns. Considering that group circulation approaches one million copies daily, return rates range as high as 10% per publication leads to considerable newsprint wastage. Based on MCIL's annual newsprint consumption of 150,000 tonnes, a 1% reduction in newspaper returns alone could save the group RM2.8 million per annum (based on newsprint price of US$550/tonne and an exchange rate of RM3.35 per US dollar).
The second key area is improving adex yields. We understand that discounts offered to advertisers are still as high as 30%. With MCIL's dominance in the local Chinese print segment (about 89% of daily circulation in Peninsular Malaysia), we believe that the discounting practice can be further narrowed going forward.
We are upgrading our FY10 dividend per share (DPS) assumption to four sen from 2.5 sen based on a revised payout ratio of 54% from 34% previously.
Although the company does not have a written dividend policy in place, its historical theoretical payout ratios have ranged between 30% and 60% (58% payout in FY09), providing some comfort to our revised DPS forecast.
Despite a steep 20% run-up in share price, MCIL still trades at a highly appealing CY10 price earnings (PE) of eight times versus' Star Publication's 14 times FY2010 earnings per share (EPS). Its attractive valuations coupled with strong earnings recovery prospects as well as appealing dividend yields clearly support further capital appreciation.
Our investment thesis for MCIL and target price of 98 sen (based on 12 times CY10 EPS) remains unchanged. We like this under-researched stock for its cheap valuations and believe that investors are continuing to ignore MCIL's dominant position in the Chinese newsprint segment and its overseas footprint, which will be its longer-term growth driver. - Affin Research, March 16
This article appeared in The Edge Financial Daily, March 17, 2010.
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