- We re-affirm 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.

- Management is confident of a better second half of the year as adex sentiment improves due to an improving global economy and the abated uncertainties caused by the general election on the local front.

- The adex for Chinese-language newspapers appears to remain resilient. It saw an increase of 8% YoY in 1QCY13, compared with a decline of 3% for the English and Malaylanguage papers.

- Overseas operations remain subdued. Its Hong Kong segment continues to face a tough operating environment, with a strong foothold established by the free newspapers (commanding 41% of print adex) and tightened government policies on the local property market.

- On the flipside, management has highlighted a few projects in the pipeline that should contribute positively to its earnings in the near future, namely:- i) its e-Education Business (which secured a contract to develop e-textbooks - in line with local curricular), and ii) its joint venture with Chu Kong Shipping Enterprise to venture into outdoor advertising in Greater China.

- The proposed spin-off of its travel and travel-related business is still ongoing and is reckoned to be completed by this year.

- Management has indicated that it would be a positive for the group if the newsprint price continues to hover around the US$600/MT level. MCIL is still awaiting the results of the investigation by MITI on the newsprint dumping allegations filed by a local producer. The revision on newsprint tariffs is due to happen in September.

- Financing cost due to short-term borrowings to partly fund its special dividend will continue to weigh on its bottom-line. The group is in the midst of refinancing its borrowings.

- Management is confident of maintaining its dividend payout at the higher end of its 30-60% dividend policy. We estimate a DPS of 6.1 sen/share for FY14F, with a yield of 5%.

- MCIL commands a market share of above 85% in the Chinese-language newspaper segment. The stock is currently a laggard, trading at 11x PE of FY14F, trailing Star’s and Media Prima’s 12x.

Source: AmeSecurities