Highlights

We attended MCIL’s 4QFY14 briefing chaired by the Group CEO Mr. Francis Tiong, and the management team. Below are the salient points:

Shariah Compliance… With all its debt repaid and the Non- Shariah advertisement below the threshold of 5%, the management has high hopes of being Shariah compliant again by the review in November 2014. This could be a catalyst for MCIL with wider spectrum of investors, especially after it was dropped from the list in the first review in Nov 2013 using the new method.

New revenue stream… Regarding its new education business (e-textbook) in Hong Kong which was launched last September, MCIL has been granted the licence and rights to publish the e-textbooks which will protect them for 3 years. Thus, by having the first mover advantage, we expect MCIL to seize about 20% of the market share which will translate into ~15m HKD (~RM7m) of profit per annum.

Digital media… See a shift in trend to the non-traditional platform. Hence, the collaboration with Media Prima on Tonton which has about 11m page viewers of which 3m belongs to Sin Chew.

Print… The group launched Sin Chew Daily – Sabah print edition, and they expect to have about 10k daily copies by end of year. Management is confident on retaining their market share.

Dividend… As mentioned in the previous report, full year dividend amounts to 4.61 sen/share. Although it fell short of our estimate, historically, dividend payout ratio has always been 50%-60%, a level which we believe is sustainable given its positive free cash flow.

Promising future..? Despite advertisers’ cautiousness and weak consumer sentiment due to Government’s subsidy rationalisation plan in Malaysia, which accounts to ~60% of its revenue, we are optimistic on its new e-textbook education business in Hong Kong.

Risks

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

Forecasts

Unchanged.

Rating

BUY

Despite weak consumer sentiment in near term due to government subsidy rationalisation, we continue to favour MCIL’s cash generative business and we are optimistic on its new education business. Hence, we are maintaining our BUY call on the company given its sustainable and relatively high dividend yield of 6.4%.

Valuation

Target Price revised upwards by 6.0% to RM1.13 from RM1.07 previously as we roll forward our valuation to FY15 earnings based on unchanged P/E multiple of 11x (its historical mean).

Source: Hong Leong Investment Bank Research - 2 Jun 2014