May 31, 2011

MEDIAC - On a solid footing

Stock Name: MEDIAC
Company Name: MEDIA CHINESE INTERNATIONAL LT
Research House: AMMB

Media Chinese International Ltd
(May 31, RM1.31)
Maintain buy at RM1.30 with revised target price of RM1.60 (from RM1.45)
: We reiterate our 'buy' recommendation on Media Chinese International Ltd (MCIL) and raise our fair value from RM1.45 to RM1.60 (25% discount to our discounted cash flow-based fair value), post: (i) the rolling forward of our valuation base year to FY12F; and (ii) a 1% to 2% marginal upward adjustment to our earnings per share forecast on FY11 full-year results.

MCIL posted a net profit of RM166 million (year-on-year [y-o-y]: 33%) for the 12 months ended March 31, 2011, coming in well within both our forecast sof RM171 million and consensus estimates.

However, the group's earnings would have outperformed our forecast by 5%, if not for an impairment charge on the goodwill of a subsidiary amounting to RM12.5 million. We understand the impairment on the intangible asset was related to one of the group's local newspapers. We are not overly concerned as management has assured this would be a one-off.

As expected, 4QFY11 net profit was sequentially lower, down 46% quarter-on-quarter (q-o-q) to RM30 million owing to a seasonally quieter period as advertisers cut back advertising expenditure after major festivities, in line with the group's historical trend.

MCIL's commendable earnings for FY11 were attributable mainly to stronger publishing and printing revenues which rose 19% year-on-year (y-o-y) on the back of robust adex and stable circulation across the three markets, with y-o-y top line growth of 18% in Malaysia and Southeast Asia, 19% in North America and 6% in Hong Kong and mainland China.

The better performance was also driven by the travel division which swung back into the black with earnings before interest and tax (Ebit) of RM2 million, thanks to rising demand for tours to Europe and North America. Operations in Malaysia and Southeast Asia remained the main earnings driver, at circa 88% of group Ebit.

Management declared a second interim dividend of 1.153 US cents per share (approximately 3.48 sen per share). This brings total dividends to 5.91 sen per share for FY11, translating into a dividend payout ratio of 60%.

We continue to like MCIL for its monopolistic position within the Chinese-language newspaper segment in Malaysia (87% market share) and superior pricing power for lucrative ad rates ' second highest industry-wide. The main risks to our earnings forecast include: (i) bigger than expected surge in newsprint costs; and (ii) lower than expected adex growth. ' AmResearch, May 31


This article appeared in The Edge Financial Daily, June 1, 2011.




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