Media Chinese - Outlook remains muted, 2 June 2015

Media Chinese

We maintain our HOLD call on Media Chinese International (MCIL) and lower our fair value based on our DCF valuation to RM0.70/share as we lower FY16F’s adex assumption and incorporate a higher risk premium. In a briefing last Friday, management reiterated that the positive results in 4QFY15 (core net profit increased by 12% YoY) was due to better overall cost management and lower newsprint prices. However, management pointed to a challenging year ahead due to the poor Malaysian consumer sentiment, which we noted reached a 6-year low in 1QCY15 at 73pts, according to MIER.

Hence, we impute weaker adex revenue for MCIL as it started its 1QFY16 in April amidst a weaker adex outlook. We expect adex revenue in 1H to be challenging and to only pick up in 3QFY16, before a seasonally slower 4QFY16. Management guided that 4QFY15’s adex revenue declined by ~3% YoY.

As with its peer, Star Media Group, the print business will be MCIL’s cash cow in the foreseeable future while it continues to invest in the digital arena in preparation for the shift of advertising trends to digital in the longer term. We foresee the impact on earnings from digital will still be muted in the near and medium term.

In digital, management highlighted some developments:-

1) 41,000 e-subscriptions have been achieved since the start of the launch of its e-papers last year, half of which was attributed to the initiative from the Sin Chew-Star e-bundling.

2) Pocketimes achieved ~1million views per month, and is set to grow. MCIL is in the midst of bringing on board a network news partner from China and Taiwan to increase viewership. Pocketimes may be a key area to extract adex revenue in the later stages, as revenue from internet video ads may be as high as those from TV.

3) Logon (e-commerce platform) had just launched a merchant facility centre which will provide assistance to traders and buyers to utilise the e-commerce platform more effectively. MCIL will also launch its mobile app soon.

Hong Kong will remain muted, as the anti-corruption drive by China will continue to keep adex spending low. However, management guided that they are in the midst of finalising a deal with a large education group in China for primary schoolbooks, which is estimated to generate an additional ~HKD10mil for its segment per year. Overall, we maintain a muted outlook for MCIL, unless consumer sentiment and adex revenue improve sooner than expected. MCIL currently trades at FY16F PE of 8x – slightly above its 5-year average of 7x. Star and Media Prima trade at 12x each.

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