Stock Name: MEDIAC
Company Name: MEDIA CHINESE INTERNATIONAL LT
Research House: RHB
Media Chinese International Ltd
(Feb 2, 87.5 sen)
Maintain outperform at 87 sen with fair value at RM1.20: We recently paid management a visit and set out below the key takeaways from the visit.
According to management, the company has raised its ad rates by 3%-5% for some of its newspapers. Ad rates for both Sin Chew and China Press were revised up by 5% while for Nanyang and Guang Ming, ad rates were maintained. For its Hong Kong publications, management has revised the ad rates by 3%. Management added that 2011 adex is off to a good start thanks to the Chinese New Year celebrations, which spurred advertising demand from hypermarkets and beer companies.
We understand that Nanyang had been repositioned last November and is now more business-focused. The response thus far, according to management, has been encouraging. While still early days, we note that 4QCY10 adex for Nanyang grew 26.8% year-on-year (y-o-y) and 13.4% quarter-on-quarter (q-o-q), although this could also be explained by factors such as economic recovery (y-o-y growth) as well as seasonality (q-o-q growth). Nevertheless, if the repositioning exercise is successful, this could help arrest Nanyang's declining adex market share, which slipped to 5.8% in 2010 versus 6.1% in 2009 and 7% in 2008.
Newsprint prices have been on an uptrend since 2HFY10 and are currently hovering around US$720 (RM2,182) to US$780 per tonne. However, this is still significantly lower than newsprint prices of US$925-US$950/tonne in early-4Q08.
In mitigation, the weakening US dollar versus the ringgit would work to the advantage of the print media players given that newsprint is priced in US dollar. MCIL is currently carrying about six to eight months worth of stock at an average cost of US$650-US$680/tonne and in order to mitigate the rising newsprint price, the management is looking at reducing newsprint usage (as newsprint accounts for 30% to 40% of production cost) through pagination control and managing wastage more effectively.
The risks include: 1) weaker-than-expected adex; 2) higher-than-expected newsprint costs; and 3) a depreciating ringgit versus the US dollar.
As we have forecast FY12 and 13 ad revenue to grow by 4% and 3.5% respectively, we have left our FY11-13 earnings forecasts unchanged for now.
Our indicative fair value is maintained at RM1.20, which is based on unchanged CY11 PER of 13 times. We reiterate our 'outperform' call on the stock. ' RHB Research, Feb 2
This article appeared in The Edge Financial Daily, February 7, 2011.
Company Name: MEDIA CHINESE INTERNATIONAL LT
Research House: RHB
Media Chinese International Ltd
(Feb 2, 87.5 sen)
Maintain outperform at 87 sen with fair value at RM1.20: We recently paid management a visit and set out below the key takeaways from the visit.
According to management, the company has raised its ad rates by 3%-5% for some of its newspapers. Ad rates for both Sin Chew and China Press were revised up by 5% while for Nanyang and Guang Ming, ad rates were maintained. For its Hong Kong publications, management has revised the ad rates by 3%. Management added that 2011 adex is off to a good start thanks to the Chinese New Year celebrations, which spurred advertising demand from hypermarkets and beer companies.
We understand that Nanyang had been repositioned last November and is now more business-focused. The response thus far, according to management, has been encouraging. While still early days, we note that 4QCY10 adex for Nanyang grew 26.8% year-on-year (y-o-y) and 13.4% quarter-on-quarter (q-o-q), although this could also be explained by factors such as economic recovery (y-o-y growth) as well as seasonality (q-o-q growth). Nevertheless, if the repositioning exercise is successful, this could help arrest Nanyang's declining adex market share, which slipped to 5.8% in 2010 versus 6.1% in 2009 and 7% in 2008.
Newsprint prices have been on an uptrend since 2HFY10 and are currently hovering around US$720 (RM2,182) to US$780 per tonne. However, this is still significantly lower than newsprint prices of US$925-US$950/tonne in early-4Q08.
In mitigation, the weakening US dollar versus the ringgit would work to the advantage of the print media players given that newsprint is priced in US dollar. MCIL is currently carrying about six to eight months worth of stock at an average cost of US$650-US$680/tonne and in order to mitigate the rising newsprint price, the management is looking at reducing newsprint usage (as newsprint accounts for 30% to 40% of production cost) through pagination control and managing wastage more effectively.
The risks include: 1) weaker-than-expected adex; 2) higher-than-expected newsprint costs; and 3) a depreciating ringgit versus the US dollar.
As we have forecast FY12 and 13 ad revenue to grow by 4% and 3.5% respectively, we have left our FY11-13 earnings forecasts unchanged for now.
Our indicative fair value is maintained at RM1.20, which is based on unchanged CY11 PER of 13 times. We reiterate our 'outperform' call on the stock. ' RHB Research, Feb 2
This article appeared in The Edge Financial Daily, February 7, 2011.
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