Highlights

Below are the salient points from MCIL’s 1HFY14 briefing, which was chaired by Mr. Francis Tiong, Group CEO.

Stable Malaysia… Despite the cautious tone on Adex outlook, management does not expect Malaysia’s operations to be as volatile as its overseas operations in Greater China and North America. Management will continue to keep a tight lid on overheads to mitigate the challenging Adex climate. Part of the cost reduction was also due to lower newsprint prices. MCIL has 6 months of newsprint inventory at US$600/MT (FOB prices). Of note, the petition by MNI on anti-dumping clams of newsprint has been closed.

Into Sabah… MCIL has setup a printing line in Sabah for RM20m and will commence circulation in 1QCY14. It is the only untapped state in Malaysia which MCIL has a strong presence. It will start-off with a circulation of 20k copies/day and will capitalise on the growing tourist arrivals in Sabah. Total Chinese circulation in Sabah was 77k copies/day (as of Dec-12).

rEadership… Launched Nanyang Siang Pau e-paper with Sin Chew, China Press and Guang Ming to follow suit. Management’s main intention to go digital is to provide its readers with various reading platform in order to retain readership numbers, thereby commanding better ad rates.

Better HK Ops… Recovery in new property launches in Hong Kong since September should see better quarters ahead for its Greater China division. The property sector contributes 20-25% of the divisions’ revenue. Moreover, its e-textbook has finally taken-off and should start contribution.

Eastward travels… Travel division’s growth was due to packages to the Eastern European region and also mishaps in their competitors which saw them gain market share. Management is hoping to achieve the same feat for CY2014. At the rate, its listing of the division may fetch a higher P/E multiple (kindly refer to our report “Listing Charming Travel” dated 16 Aug-12). Listing of the division will now be in early 2014.

Shariah dropout?… Although it will be refinancing RM500m bridging loan to sukuk in order to comply with the latest Shariah ruling, MCIL may still be dropped out from the list as the management is unable to cap its revenue from nonshariah compliant advertisements at 5%.

Risks

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

Forecasts

Unchanged.

Rating

BUY

We continue to favour MCIL’s cash generative business and prudent management in containing overall costs to mitigate the Adex slowdown. In view of more than 10% upside from the current share price, we are maintaining our BUY call on MCIL.

Valuation

Target Price maintained at RM1.16 based on unchanged P/E multiple of 11x FY14 earnings.

Source: Hong Leong Investment Bank Research- 29 Nov 2013