Highlights

• We attended Media Chinese 4QFY15 briefing hosted by the Group CEO Mr. Francis Tiong and Executive Di rector Patrick Leong. Below are the salient points:

• Total adex for January to March 2015 in Hong Kong grew 7.8% yoy. Out of the 6 segments (newspapers, magazines, TV, radio, interactive and others), interactive or digital media charted the highest growth of 57.2% yoy.

• This shows that the digital space is gaining momentum in Hong Kong. Management expects to gain no less than 20% of advertising income from the digital segment withi n 2-3 years’ time.

• For the Malaysian publishing and printing segment, although they experienced a slight decline in the readership numbers, Media Chinese’s newspaper is still in the top three positions. The group also has taken steps to address the shi ft in consumer preferences by collaborating with The Star last year, launched their own online video portal (Pocketimes) and e-commerce marketplace (Logon). For its e-Paper collaboration with Star, MCIL managed to capture total of 41,000 e-subscriptions since it was launched.

• Management also shared about a possible diversification into non-media business such as education and properties development. MCIL is currently in the negotiation stage with an educational group in China and Taiwan.

• 2015 would be challenging due to softer business envi ronment and consumer sentiment caused by GST which affects both advertisers and consumers. Nevertheless, management shared that it will remain prudent in its costs management and the lower newsprint costs should mitigate the challenges faced.

Risks

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

Forecasts

• Cut our forecasts by 6-11% to reflect slower adex growth and challenging outlook.

Rating

HOLD

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

Valuation

• TP decreased to RM0.62 from RM0.64 as we roll forward our valuation based on unchanged P/E multiple of 8x (historical average) CY16 earnings.

Source: Hong Leong Investment Bank Research - 1 Jun 2015