Highlights

Below are the k ey takeaways from MCIL’s 1HFY15 results analysts briefing, chaired by Mr. Francis Tiong, Group CEO and his management team:

Charging ahead to a digital world… On a positive note, MCIL launched its LOGON e-commerce business and POCKETIMES video channels yesterday. LOGON: Foc using on SMEs in particular, is dubbed to be the premium bilingual e-commerce platform in Malaysia. Will commence operation on 1-Jan-2015.

Meanwhile, Pocketimes – a new mobile video content platform that produces audio - visual information, targets younger and a more tech savvy population. It beg an operating on 21 -Jul- 2014 and has garnered 1.5m video views and 30m page viewers since then.

We believe this move is positive for MCIL as it will be able to leverage on its massive eyeball numbers, about 2.5m print readers daily and more than 2m followers on social media. Hence, increasing its market share.

Back in the list… Based on the official announcement out yesterday (27 Nov 2014) by Securities Commission, MCIL has regained its Shariah status. This could be a potential catalyst for its share price performance.

Dividend disappointment… Its 1.44 sen/share dividend (40% payout ratio), announced during the 1HFY15 results, only accounts for 30.8% of our DPS estimates. We understand that going forward; MCIL will keep its dividend payout at 40%, lower than its usual payout of 50% -60%.

Future for media companies looks bleak… Expects MCIL’s 2HFY15 to be challenging due to a softer business environment and low consumer demand, strained by government subsidy rationalisation and GST. However, the company believes that it should be manageable and will remain prudent in its cost management.

Risks

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

Forecasts

• We revise dividend payout from 50% to 40%. As a result, we cut FY15 and FY16 DPS by 33%. As such, it brings our DPS forecasts to 3.09 – 3.26 sen/share, translating to a dividend yield of 3.7%-3.9%.

Rating

HOLD

• We still like MCIL for its prudent cost management and its strong cash generative business; however, we believe that adex will be unexciting and gloomy mainly caused by the short term macro headwinds and poor consumer sentiments. Maintain HOLD.

Valuation

• Target Price unchanged at RM0.88 based on unchanged P/E multiple of 1 1x (based on historical average) CY15 earnings

Source: Hong Leong Investment Bank Research - 28 Nov 2014