-  We maintain our BUY recommendation on Media Chinese International (MCIL) with an unchanged fair value of RM1.45/share based on a 5% discount to our DCF valuation.

-  MCIL reported a net profit of RM176mil (-10% YoY) for FY13, in-line with expectations.

-  The weaker FY13 net profit was largely due to higher operating expenses and finance costs, due to the borrowings undertaken to partly fund the special dividend declared during the year.

-  Revenue from the Malaysian operations increased QoQ by 2.7% despite the first quarter being traditionally the slowest for adex due to higher advertising revenue driven mainly by increased government spending.

-  However, QoQ, the overall publishing and printing segment revenue declined by 0.7% due to adverse economic conditions in North America and increased competition from the free newspapers in Hong Kong. Currently, the free papers command approximately 40% of print adex in the local market.

-  The tour business experienced a 10% YoY pickup in revenue as the division saw higher demands for its Europe and other long-haul tours by Asian customers, due to its promotional campaigns and the weak euro.

-  With the general election behind us, we expect a marginal pick up in adex by the traditional advertisers in the second half of the year, coupled with the many festivities and advertisers’ inclination to exhaust their budgets towards year-end.

-  Newsprint price continues to trend lower, with the spot price breaking below the US$600/MT level currently. MCIL currently holds 6-8 months’ inventory, at an average cost of US$660/MT to US$680/MT (inclusive of duties and freight charges).

-  The group declared a final dividend of 3.1 sen/share. Stripping out the 41 sen/share special dividend that was declared during the year, this brings the full-year DPS to 5.15 sen/share. This is equivalent to a payout of 49% and a yield of 5%.

-  At the current level, the stock is trading at a forward PE of 11x, trailing behind Star Publications’ and Media Prima’s 12x.

Source: AmeSecurities