Highlights

• We attended Media Chinese’s 1HFY16 briefing, chaired by Group CEO Mr. Francis Tiong and Executive Director Patrick Leong.

• Media Chinese still commands the largest market share for Chinese newsprint in Malaysia, a total of 75% out of the pie. The group charted a decline in its circulation numbers; however, number of readership has increased by 16%. This signifies a growth in its digital paper. YTD, average daily esubscription has increased to circa 75,000.

• For its Hong Kong division, digital segment recorded a double digit growth of 11%. Management expects growth to accelerate to 25% within the next 2 to 3 years.

• Meanwhil e, its video content plat form ‘Pocketimes’ showed significant growth yoy. Started operations last year on 21 July 2014, it has since then gained 3.5m video views (vs. 1m in 1HFY15) and 57m page views (vs. 30m page views in 1HFY15).

• Due to the unfortunate incident in Paris, management is expecting performance of its travel division to slow down in 2HFY16. This setback would be mitigated by changing the travel package from Europe to countries such as Australia and New Zealand.

• In our view, potential challenges faced by Media Chinese would be: (1) lower adex spending in Malaysia caused by inflationary cost pressures, GST and potential subsidies removal; (2) slowdown in Greater China’s economy; and (3) decline in circulation as consumers move from traditional to non-traditional media plat form. These concerns should be mitigated by Media Chinese’ prudent cost control.

Risks

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

Forecasts

• Maintained.

Rating

HOLD

Although we favour MCIL for its prudent cost management and 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

• Maintain TP at RM0.50 based on unchanged P/E multiple of 6x based on 1 SD below average mean. We believe valuation is justified in view of smaller market capitalisation compared to peers and relatively low liquidity.

Source: Hong Leong Investment Bank Research - 27 Nov 2015