RAM Ratings has reaffirmed the AA1/Stable rating of Media Chinese International Limited’s (MCIL or the Group) RM500 million Medium-Term Notes Programme (2014/2029).

Published on 03 October 2014

RAM Ratings has reaffirmed the AA1/Stable rating of Media Chinese International Limited’s (MCIL or the Group) RM500 million Medium-Term Notes Programme (2014/2029).
The rating reflects MCIL’s leading position within the Chinese language newspaper segment in Malaysia, with an 89% circulation market share in the peninsula and an advertising expenditure (adex) share of about 70% (of total Chinese newspaper adex) since 2009; its adex share improved to 74% in 2013. The Group owns 4 newspaper titles (Sin Chew Daily, China Press, Guang Ming Daily and Nanyang Siang Pau) within the segment, accounting for around 20% of total newspaper adex (all languages). This gives the Group the unique advantage of segmenting its readership and addressing competition from other titles. In Hong Kong, its Ming Pao Daily News continues to hold about 10% of total newspaper adex despite competition from free newspapers.
The rating is also supported by MCIL’s strong cashflow-generating ability and robust balance sheet metrics. The Group maintained adjusted funds from operations (FFO) debt coverage ratio of 0.43 times and registered an improved adjusted gearing ratio of 0.70 times in fiscal 2014 (FY 2013: 0.82 times). “Given debt repayments and the low capex required for its operations, we anticipate the Group reaching a net cash position by fiscal 2017 and achieving FFO debt coverage of 0.7 times,” said Kevin Lim, RAM’s Head of Consumer & Industrial Ratings. “MCIL has also maintained cash reserves of more than USD100 million for the past 3 years, its quick and current ratios improving to a respective 2.05 and 2.68 times from 0.72 and 0.92 times, after refinancing its short-term debt to medium-term notes,” he notes.
MCIL’s fiscal 2014 revenue contracted by 1.9% to USD468.73 million, primarily due to lower publishing revenue in Malaysia, against a backdrop of softening consumer sentiment owing to subsidy rationalisation measures. Revenue was further dragged down by a 5.56% depreciation of the ringgit against the US dollar – MCIL’s reporting currency. Consequently, the Group’s adjusted OPBDIT fell 3.70% y-o-y to USD74.40 million. A full-year impact of heftier finance costs from the Group’s increased debt load resulted in its pre-tax profit dropping 11.07% to USD68.56 million.
The MH 370 flight incident in 1Q FY March 2015 had dampened consumer sentiment, particularly in April and May 2014. This combined with pressures from subsidy rationalisation measures resulted in the Group’s revenue and OPBDIT decreasing 8.6% and 32.0% y-o-y, respectively. Coupled with the short-term effect of the MH17 airline tragedy, the outlook for the adex sector is expected to be challenging in FY 2015. “Nevertheless, the Group’s financials are anticipated to remain resilient. We envisage some recovery in advertising revenue in 2H FY 2015 as advertising activity picks up before the implementation of the GST on 1 April 2015,” Lim adds.
MCIL’s rating is moderated by the rising prominence of newer media platforms in Malaysia. While online sites/news portals may affect the print industry in the long term, we opine that Chinese newspapers will remain relevant to Malaysian advertisers in the short to medium term. The Group also exhibits susceptibility to economic cycles and newsprint price volatility. Adex, which accounts for approximately 60% of MCIL’s total revenue, is highly sensitive to GDP performance and significant one-off events. That said, the Group’s business and financial profiles have proven to be resilient during previous downturns. MCIL generally stocks up about 6 months’ worth of newsprint inventory, which could give it some flexibility in deferring newsprint purchases when prices are high.
Media contact
Chin Jin Han
(603 7628 1168)
jinhan@ram.com.my