News

The proposed listing of Media Chinese’s (MCIL) travel division – Charming Holidays, on the Growth Enterprise Market (GEM) of the Hong Kong stock exchange has lapsed and will not be pursued until further decision by the company.

Highlights

Aiming for more?… The proposed spin-off of Charming Holidays was announced in Aug-12 (kindly refer to our report “Listing Charming Travel” dated 16 Aug-12). Since then, earnings from the travel division have been exceptionally strong especially for 1HFY14 (see figure below), representing >10% of overall PBT, instead of 2-3% historically (against full year comparison).

Strong growth for the travel division was due to new tour packages i.e. holiday packages in Eastern European region, and also mishaps in their competitors which saw MCIL gain market share. Hence, we believe that the management may be re-evaluating their options to seek higher valuations for

Keeping our cake… Although the spin-off has fallen through, whereby value for its travel division may remain trapped, shareholders’ may instead fully enjoy the bigger earnings contribution from the travel division instead of sharing 25% of its stake upon listing. Moreover, shareholders may benefit more if it lists Charming Holidays at a later date with higher earnings which is likely to fetch higher valuations.

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. The recent disposal by Shariah funds provides accumulation opportunity. Hence, we are maintaining our BUY call on the company.

Valuation

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

Source: Hong Leong Investment Bank Research - 7 Feb 2014