Highlights

• We attended Media Chinese 4QFY16 analyst briefing, hosted by the Group CEO Mr. Francis Tiong and Executive Director Patrick Leong. We left feeling neutral with regards to MCIL’s outlook. The salient points are:

• Spending in China is more cautious. Adex for newspapers and magazines in Hong Kong showed a decline of 0.3% yoy and 18.4% yoy, respectively. This is due to the closure of magazines and newspaper businesses in Hong Kong. Due to weak market conditions, advertisers have been decreasing thei r adex spending. Hence, media companies are getting a smaller piece of the Adex pie.

• For its Malaysian segment, since its launch, the group achieved 80,155 e-subscriptions for both the morning and night editions. Management stated that the main target for epaper would be the younger generations that are more techsavvy.

• Apart from attracting corporates, Media Chi nese’s e - commerce platform, Logon, recorded recruitment of over 1,400 merchants. The group stated that it is currently giving out cash discount vouchers to capture more online buying.

• Management also plans to launch two new mobile applications related to healthcare and event directory in Hong Kong. The group’s effort to grow its digital media segment is commendable.

• On a positive note, we believe the group would be able to sustain its dividend payout to investors in the future. As of 31st March 2016, MCIL has turned net cash to RM24.9m. Also, with regards to the proposed sale of One Media Group (OMG) that was signed in March, we do not discount the possibility of a special dividend payout. YTD, OMG recorded a loss of approximately US$2m.

Risks

• Weak Adex growth;

• High newsprint cost;

• Threat of new players;

• Depreciation of RM vs. US$; and

• Regulatory risk.

Forecasts

• Due to tough market condition in all its home markets, we cut FY17 – FY18 earnings by 14% - 10%, respectively.

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.

Valuation

Downgrade to HOLD. We arrive at a higher TP of RM0.70 based on the updated P/E multiple of 9.5x 1SD below average mean.

Source: Hong Leong Investment Bank Research - 1 Jun 2016