News /  Financial  Impact

• In an announcement to Bursa Malaysia, Media Chinese said that its wholly-owned subsidiary Comwell Investment Ltd has entered into a memorandum of understanding (MOU) with Qingdao West Coast Holdings (Internation) Ltd (Potential Purchaser) in relation to the proposed disposal of 73.01% or 292.97m shares in One Media Group Ltd.

• The MOU is to facilitate the potential purchaser to apply for requisite approval from China’s National Devel opment and Reform Commission (NDRC). Note that the ultimate controlling shareholder of the Potential Purchaser is a PRC State-Owned Enterprise.

• A subsidiary of MCIL, One Media provides Chinese language lifestyle publications in Greater China region. Due to impairment loss on goodwill and impai rment loss of interest in associate, One Media recorded a loss for the year ended 31st March 2015 of HKD11.1m (RM6.3m).

• One Media only contributed circa 5% to MCIL’s turnover in FY2015. Furthermore, it is currently operating in a challenging environment due to slowdown in Greater China’s economy, cautious sentiment and structural shi ft in media platform. Therefore, we believe the disposal would have immaterial impact to MCIL’s future earnings.

• Share price of One Media has surged further to HKD1.47 from HKD1.22 when MCIL made preliminary announcement on the disposal. At HKD1.47, MCIL’s 73.01% stake is estimated to worth circa RM224.9m or 13.3 sen per share. While MCIL may utilize part of the disposal proceeds for diversification into other media segment, we do not rule out a special dividend payout (13.3 per share translates to 20.2% additional yield) given its strong cash flow.

Risks

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

Forecasts

• Maintained pending more information from the company.

Rating

• TRADING BUY
• Upgrade to Trading Buy as the potential special dividend from disposal proceeds may excite the share price in the near term.
• The “searc h for yiel d” environment may shi ft investors’ focus on companies with decent dividend yield. MCIL has prudent cost management and strong cash generative business, but weaker MYR and CAD against USD as well as lacklustre adex outlook are dampener for the stock.

Valuation

• Maintain TP at RM0.67 based on unchanged P/E multiple of 8x based on 1 SD below average mean. Valuation is justified in our vi ew, due to MCIL’s smaller market capit alisation compared to peers and low liquidity.

Source: Hong Leong Investment Bank Research - 7 Mar 2016