Highlights

We attended MCIL’s 4QFY13 briefing hosted yesterday, which was chaired by Mr. Francis Tiong, Group CEO and the management team.

Competitor… Management believes Astro poses a bigger threat than online content as it has been capturing a bigger slice of Adex market share. Hence, management will pursue digital innovation through creating more video and interactive contents. We believe that the digital revolution is the next growth area for the Adex market and will continue to eat into print’s share of Adex.

Duty threat… MITI is investigating anti-dumping claims of newsprint into Malaysia. Malaysian Newsprint Industries S/B (MNI) has already been receiving protection for 10 years. The policy review is on Sep-13. If the protection for MNI is expanded to other countries, we are looking at newsprint price increase of 8-10%. MCIL sources 50% of its newsprint from MNI and remaining 50% from Europe and Chine. We estimate MCIL has 6-8 months of newsprint inventory at US$650/MT.

Free paper… Hong Kong has 6 free papers (one publishes once a week) circulating 4m copies/day to 2.4m households, commanding 41% of news Adex. Hence, as a differentiation measure besides being the most “credible” newspaper, Ming Pao has increased its niche content from 14% to 20% with higher newsprint quality aiming the targeted market of luxury labels, education and certain classified segments. Nonetheless, its Adex revenue for FY13 was impacted by the slowdown in the property and finance division.

HK education… MCIL has obtained e-textbook licenses to develop 3 e-textbooks in line with the local curricular for primary and secondary school. This venture is still at the nascent stage.

Travel listing… The listing of its travel division is expected to be concluded in a few months’ time but impact is negligible due to its relative size.

Risks

Weak Adex growth; High newsprint cost; Threat of new players; Depreciation of RM vs US$; and Regulatory risk.

Forecasts

FY14 earnings remained relatively unchanged while introducing FY15-16 earnings forecasts.

Rating

HOLD

We favour MCIL’s prudent management and its lean cost structure. However, the higher financing cost due to debt raised for its capital repayment will be a drag on its earnings growth. Moreover, with our NEUTRAL outlook on the sector, we do not see much catalyst that will drive MCIL’s earnings growth. MCIL will still be able to provide decent yields of 4- 6% at the current share price given its strong cash generation business. In view of less than 10% upside from our upwards revised TP, we are maintaining our HOLD call on MCIL.

Valuation

• Target Price raised by 18% to RM1.31 based on higher P/E multiple of 12x FY14 earnings. P/E multiple of 12x was used instead of 10x due to improved market sentiment.

Source: Hong Leong Investment Bank Research - 31 May 2013